Parliament: Accountability of Executive

Lord Waddington: asked Her Majesty's Government:
	Whether they have made any plans to improve parliamentary accountability of the Executive.

Baroness Ashton of Upholland: My Lords, parliamentary accountability is at the heart of our constitutional arrangements. The Government are accountable to Parliament for all their actions.

Lord Waddington: My Lords, I am grateful to the noble Baroness for her very courteous reply, which is helpful as far as it goes, but is it not a very serious matter that, while there is talk of reducing the powers of this place, nothing is being done to restore to the House of Commons its ability to hold the executive to account and scrutinise legislation properly? Is it not shocking that, because of the guillotine, the Communications Bill should have come to this place with 101 clauses and five schedules entirely unconsidered in the Commons? Is it not really rather scandalous that, after the Prevention of Terrorism Bill had been extensively amended in this place, it went back to the Commons and all the amendments made in this place were weighed off in one three-hour debate—most of which, incidentally, was taken up by replies from the Secretary of State? Can we therefore have an assurance that, before there is any further messing about with this place, the Government will make changes to allow the House of Commons to do its job properly?

Baroness Ashton of Upholland: My Lords, the noble Lord will not be surprised to hear that I think that programming has its benefits. In another place, the Government work through the usual channels with the opposition parties to ensure that the critical issues are debated fully. In your Lordships' House, we have always had the privilege of debating a lot of issues, and we should continue to do so. As my right honourable friend the Leader of the Commons said this morning, the ambition is to ensure that this House is complementary to another place.

Lord Taylor of Blackburn: My Lords, does my noble friend agree that when the noble Lord, Lord Waddington, was the Leader of this House, what he describes happened to us on several occasions? Surely we are just continuing what he started years ago.

Baroness Ashton of Upholland: My Lords, I was not here, so, unfortunately, I cannot comment on that. I am sure that the noble Lord, Lord Waddington, did his best.

Lord Goodhart: My Lords, do the Government accept that scrutiny of their actions is central to accountability? Will the Government therefore co-operate in setting up a Select Committee to scrutinise the treaty-making process before treaties are agreed and signed?

Baroness Ashton of Upholland: My Lords, that issue needs to be considered. I know that the noble Lord feels strongly about it. I will, of course, ensure that his comments are referred to those who are considering the matter at the moment.

Lord Forsyth of Drumlean: My Lords, the Minister is not quite right—is she?—when she says that all of the Government's actions are subject to scrutiny by Parliament as a whole. The Finance Bill is still not subject to proper scrutiny by this House. Given that the Finance Bill has now doubled in size to, on average, 445 pages; given that vast swathes of it are simply not debated in the other place; and given the Government's fascination with the powers and role of this place, would it not be appropriate to consider giving this House a proper role in scrutinising Finance Bills?

Baroness Ashton of Upholland: My Lords, I do not agree with the noble Lord, which will be absolutely no surprise to him. It is not beyond the ability of those in the opposition parties in another place to determine precisely how they wish to scrutinise legislation. I am sure that they will be able to do that.

Lord Soley: My Lords, does my noble friend recall that debates in Westminster Hall were introduced in 2000 partly to aid greater scrutiny of the Executive? Does she also recall that the Prime Minister answers questions before a Select Committee, which was never previously done? Are there not many other examples of that type? Would it not be better if parliamentarians both here and in the House of Commons sat down and asked how they could improve the system which we operate and did not wait for governments to do things to us? It is supposed to be parliamentarians, not governments, who drive Parliament.

Baroness Ashton of Upholland: My Lords, I agree with my noble friend Lord Soley. It is important to recognise all the changes that we have made to ensure that we are able to deal with scrutiny appropriately. It is indeed for parliamentarians to make their voices heard, which I believe is what the noble Lord, Lord Waddington, was seeking to do in this case.

Baroness Shephard of Northwold: My Lords, does the noble Baroness agree with me and many on this side of the House that to talk of reform of this House means reform of Parliament and indeed of the whole of our constitution?

Baroness Ashton of Upholland: My Lords, I would refer the noble Baroness to my comments earlier about my right honourable friend the Leader of the House of Commons, who said on radio this morning that he saw the role of this House as complementary. Therefore, he is thinking across Parliament in that way.

Lord Corbett of Castle Vale: My Lords, are not Bills that arrive from the other place without proper scrutiny a testament to the incompetence and the stupidity of the Opposition?

Baroness Ashton of Upholland: My Lords, I am not sure of the parliamentary language in this context, but it is very important that scrutiny of legislation is carried out in another place and in your Lordships' House. I accept, however, as I said, that programming has its role in making sure that critical issues are dealt with properly.

Lord Kingsland: My Lords, if a committee of this House were to suggest that evidence should be taken in committee on the basis of subpoenaing Cabinet Ministers and taking their evidence on oath, would the Government support that?

Baroness Ashton of Upholland: My Lords, I am not going to get into the idea of subpoenaing Cabinet Ministers in your Lordships' House today.

Lord Davies of Coity: My Lords, does my noble friend recognise that this Question refers to parliamentary accountability? That is the accountability of both Houses of Parliament. Does my noble friend recall that, until their removal in 1999, the hereditary Peers, the majority of whom were on the Conservative Benches, held their Government to account in the Commons not once?

Baroness Ashton of Upholland: My Lords, I agree with my noble friend that it is very important that proper and effective accountability takes place in your Lordships' House and in another place.

Lord Saatchi: My Lords, I think that one of the members of the Public Administration Committee in another place said this morning that his Select Committee was the pre-eminent court in the land. Alas, that is not strictly true, is it? I believe that Erskine May has made clear in all its editions from 1859 to the present day that there are clear limitations on the powers of our Select Committees to send for persons, papers and records. Therefore, would we not be better off on the accountability that my noble friend and, I am sure, all of us seek if our Select Committees had more powers of the type given to US congressional committees? Those powers include, as my noble friend Lord Kingsland said, the awesome power of subpoena and the fact that a false statement before a committee counts as perjury.

Baroness Ashton of Upholland: My Lords, we had a long and interesting debate about the powers of Select Committees during the passage of the Inquiries Bill. I hope that the noble Lord might look at that. Indeed, I spoke with the chairman of the Select Committee in question, Mr Wright, about the issues of concern. I think that the noble Lord will find that the powers of Select Committees are wide and varied, and I do not recall any Minister refusing to attend.

Lord Foulkes of Cumnock: My Lords—

Lord Rooker: My Lords, we are well into the eighth minute.

Suicide: False Rape Allegations

Lord Campbell-Savours: asked Her Majesty's Government:
	What assessment is being made of the incidence of suicide amongst men falsely accused of rape.

Baroness Scotland of Asthal: My Lords, such cases are tragic but extremely rare. A recent analysis of reported rape cases indicated that approximately 3 per cent were false allegations, none of which went beyond the investigative stage. Deaths in prison custody are investigated by the Prison and Probation Ombudsman, including individual circumstances and contributory factors. During 2006, data will be collected for the first time on suicides of offenders under community supervision, including post-release.

Lord Campbell-Savours: My Lords, does my noble friend accept that suicide among men falsely accused of rape is some indicator of the scale of miscarriages of justice? Surely any review of rape law must take into account the number of occasions where women have withdrawn an allegation of rape after the accused has been sentenced. Should we not now have an audit of the incidence of false rape accusations?

Baroness Scotland of Asthal: My Lords, I agree with my noble friend that the withdrawal of a rape allegation on the basis that it was falsely made initially is a matter of real importance. However it is very difficult to look at the scale of miscarriages of justice on the basis of those who commit suicide. The figure of 3 per cent relates to those who have withdrawn the allegation, as recent studies make clear. There is a lot of work for us to do. I certainly agree with my noble friend that the consultation is an opportunity for us to look at these issues much more closely.

Lord Dholakia: My Lords, a little while ago there was a very critical report by the Police and Crown Prosecution Inspectorate about the prosecution and investigation of rape cases. Since then a rape action plan has been considered in terms of stocktaking. Can the Minister indicate why the success rate in convictions for rape is so low and whether there is any intention to measure the situation relating to people who are falsely accused of rape?

Baroness Scotland of Asthal: My Lords, it would be right to say that the real issue is the under-reporting of rape. We know that a huge number of women are put off and frightened by the process of coming forward. We have taken that very seriously indeed and it is one of the reasons why the consultation is going to look at this matter more closely. But we have done a great deal to address this issue. We have introduced specialist rape prosecutors in every CPS area. We have overhauled the law, as noble Lords know, on sexual offences. We have created special measures to enable people to give evidence more easily. We have limited the circumstances in which the victim's previous sexual history is admissible in court and we have clarified and expanded the circumstances where evidence of the defendant's bad character is admissible. Now there is the issue of what amounts to consent and how we should deal with it. All those matters have to be looked at for us to get the best and fairest system, not only for the accused but for the victim.

Lord Stoddart of Swindon: My Lords, is the anonymity of the accused as well as the accuser taken into account in this consultation?

Baroness Scotland of Asthal: My Lords, it is. Noble Lords will know that the accused is not identified prior to charge. During the arrest period, anonymity is maintained. We have debated the whole question of whether anonymity should be continued throughout the trial on a number of occasions and noble Lords will know that all the reports we have had indicate that the current balance is the fairest one.

Lord Campbell-Savours: My Lords, has my noble friend seen the research by a Dr Eugene J Kanin of Purdue University in the United States of America, whose paper False Rape Allegations found that 41 per cent of forcible rape allegations were false following admissions by the complainants when they were questioned? Is that not a startling figure and does it not suggest that the figure given by my noble friend of 3 per cent may well be a gross underestimation?

Baroness Scotland of Asthal: My Lords, I have certainly heard of that research but I respectfully say to my noble friend that our own research—many noble Lords will have seen it—called A gap or a chasm? Attrition in reported rape cases, undertaken by Liz Kelly, Jo Lovett and Linda Regan, has looked at this very issue. They looked at the figures that were apparent in this country and, in examining those figures, they came up with 3 per cent They interrogated the cases that had been identified by the police as false allegations. I have to say, we still live in an environment where people are very sceptical about these allegations and are quite rigorous in the way in which they approach them before cases are brought forward. That is an issue which we have to look at, too.

Lord Tebbit: My Lords, the noble Baroness referred to the victim and the accused. Would it not have been more even-handed to have referred to the accuser and the accused? Until the trial is complete and it is discovered whether the allegation is true or false, there is no victim, there is only an accuser.

Baroness Scotland of Asthal: My Lords, of course I accept the noble Lord's nicety of language, but I have to tell him that there are many rape victims who never have the courage to come forward and who are never able to get the justice they need. They remain victims, irrespective of whether their perpetrator is or is not charged and properly convicted.

Bovine Tuberculosis

Baroness Byford: asked Her Majesty's Government:
	What progress they are making in the control of bovine tuberculosis.

Lord Rooker: My Lords, in recent months the Government have introduced pre-movement testing in England to help reduce the geographical spread of TB, implemented a new system of compensation to avoid overpayment and speed up the removal of reactors, and consulted on the principle and method of badger culling to control TB in the high-incidence areas in England. We continue to work closely with our stakeholders on all elements of the TB programme, which is very complicated.

Baroness Byford: My Lords, I thank the Minister for that reply. Does he agree that the figure of 3,653 new herd incidents recorded in Great Britain is a disgrace? That was a 9.1 per cent increase on 2004. This disease is out of control. Does he support the comments made by Ben Bradshaw on 20 April about international experience suggesting that leaving the reservoir of wildlife untouched will prevent us containing and eradicating bovine TB?

Lord Rooker: My Lords, this is an incredibly complex issue, which I have not had the opportunity of examining. I certainly cannot comment on what Ben Bradshaw said. At the moment we are looking at the results of the consultation that took place over 12 weeks and finished on 10 March. We will conclude our deliberations as quickly as possible.
	I have obviously looked at the figures, coming back fresh to this serious issue after seven years—it was an area I was responsible for a few years ago. However, it goes back: in 1980 Lord Zuckerman chaired a committee looking at the issues of bovine TB; after that was Professor Dunnett; and now we are operating on the basis of Professor Krebs's original report. In the last week some figures have been published about a reduction in incidence, although we do not know the reason, even though more tests have been taken. It is an incredibly complicated and sensitive issue. It is important from the point of view of public confidence that it does not get out of control.

Lord Grantchester: My Lords, one of the statutory aspects of the TB situation concerns cattle taken as reactors that subsequently prove negative at culture and negative at slaughter. With the current rather incomplete compensation scheme, everyone loses. Can the Minister tell us how many false positives to TB there are, what percentage of the total this is and what the Government are doing to improve the science of the tests?

Lord Rooker: My Lords, I cannot give the figure that my noble friend has asked for. In 2005, 30,000 cattle were slaughtered. That was a 30 per cent increase on 2004. As I said, we have just changed the compensation system to avoid overpayments. It is not perfect and has only just changed; it is early days yet and the Government are paying for the first testing anyway. We need to speed up reactor removal. I will check on the compensation issue for those cattle later found not to have TB, but I suspect that that is a minority of the figure that I have just cited.

Lord Soulsby of Swaffham Prior: My Lords, Professor John Bourne, who is in charge of the Krebs programme to look at the control of TB and the elimination of badgers, recently stated that the large-scale control of badgers would be necessary to accomplish that, which could be unacceptable in the United Kingdom. What work is being done to look at alternatives such as the vaccination of badgers and of cattle, as well as the measures that the Minister mentioned?

Lord Rooker: My Lords, the noble Lord is absolutely right: there is an issue as to whether the trials which have just taken place should have been on a larger scale. They were not the trials that Professor Krebs originally designed, which Professor Bourne and his team set out to initiate, because of gross interference with the culling. We spend £15 million a year on vaccines, but obviously there is no perfect solution. As noble Lords know, there is a problem in the sense that there are no real tests for live badgers. Testing is being carried out for a field study of a badger vaccine. Trapping will start in June and an attempt at vaccination will start in September. With cattle, in January the Veterinary Laboratories Agency began further work in looking at new vaccine candidates and the delivery protocols. It is not easy to get the necessary badger vaccine to the badger.

Lord Livsey of Talgarth: My Lords, will the Minister—

Lord Walton of Detchant: My Lords—

Lord Campbell of Alloway: My Lords—

Lord Grocott: My Lords, it is the turn of the Liberal Democrats.

Lord Livsey of Talgarth: My Lords, I agree with the Minister that he makes a very serious point and, although it may not sound like it, this too is a serious point: will he investigate the possibility of confirming the almost total decline of hedgehogs in this country since the doubling of badgers has occurred over the past decade? My understanding is that hedgehogs are treated as hors d'oeuvre by badgers. If this could be confirmed, perhaps public opinion would be less hostile to culling badgers sick with TB, and then a balanced programme in TB hotspots of culling both cattle and badgers with bovine TB can proceed in a balanced way.

Lord Rooker: My Lords, I fully accept what the noble Lord said about the need for balance. In my experience—including two years in MAFF and even the past year in Northern Ireland, where there is an incidence of TB—I have never had a conservationist come with a delegation and say, "We are very worried about the TB in cattle", but I get plenty of people queuing up to say, "Leave the badger alone". But the badger is a predator. I accept that it is a protected species, but we have to look at this in the balance. It is very important for the food chain and animal health in this country that this issue is tackled seriously and in a mature way. It should be based on science, it is true, but the science does not always deliver the clear results where you can be absolutely certain that the route you take is the correct one.

Lord Walton of Detchant: My Lords, while the Minister is, of course, absolutely correct in confirming that this is an extremely complex issue, I am old enough to have seen the ravages of bovine tuberculosis in children when I was a young doctor. This caused not only spinal tuberculosis, with frequent paralysis of the limbs, but much damage to bones and other organs. Since that time, the universal pasteurisation of milk has protected the population very largely, but is it not the case that these isolates of bovine tuberculosis in wildlife and cattle still carry a threat to human health? For that reason, is it not important that every conceivable effort should be made to eliminate this infection?

Lord Rooker: My Lords, the noble Lord is absolutely right—pasteurisation is the key but, as in everything else, nothing is 100 per cent. I understand that there are still a few dozen—maybe 40 or 50—cases a year of bovine TB in humans. That is unacceptable.

Lord Campbell of Alloway: My Lords, is the noble Lord aware that an objective assessment of compatibility with the JCHR on the complex jurisprudence will not always satisfy the practical requirements of government?

Lord Rooker: My Lords, I am completely lost. I am all in favour of human rights and I am in favour of cattle rights and badger rights. I am also in favour of doing something about animal health as it affects human health.

Terrorism: Extradition

Lord Lamont of Lerwick: asked Her Majesty's Government:
	Whether they plan to make any changes to human rights legislation as it affects the powers of Her Majesty's Government to extradite from the United Kingdom persons with connections to terrorist activities.

Baroness Scotland of Asthal: My Lords, my noble and learned friend the Lord Chancellor made it clear at the weekend that consideration shall be given to whether any changes to the Human Rights Act are required to protect public safety.

Lord Lamont of Lerwick: My Lords, I thank the Minister for that reply. Does she realise that while the Attorney-General calls the Human Rights Act one of the Government's greatest achievements, many more people will agree with the Prime Minister that it is an abuse of common sense that we cannot extradite from this country people who have arrived here by hijacking passengers and aircraft? Who got us into this mess in the first place, and is it not time we had an urgent amendment of the Act?

Baroness Scotland of Asthal: My Lords, we need to be clear straightaway that issues of removal are governed by the ECHR. The noble Lord will remember, because his Government were then in being, that it was the case of Chahal in 1996 that imposed an impediment with regard to removal. Of course the noble Lord would not wish me to comment on a case that is still sub judice.

Lord Anderson of Swansea: My Lords, will my noble friend accept that it is puzzling that those who so abuse our hospitality that they are prepared to maim or kill our citizens cannot be extradited to their countries of origin when we have doubts about the judicial system in that country or the regime of punishment? Will she confirm that our French colleagues take a far different and rather more robust view of extradition, for example to north Africa?

Baroness Scotland of Asthal: My Lords, the comparative task my noble friend asks me to perform regarding the French system and ours would require a much longer response. There are those of us who honour our own system, and say it is sufficiently robust to respond appropriately. With regard to extradition, my noble friend will know that the Government have been working extremely hard to develop and pursue memorandums of understanding with other countries so that proper returns consistent with ECHR obligations can be undertaken. We are pursuing those with the greatest energy.

Lord Goodhart: My Lords, rather than trying to send people back to countries where they are likely to be killed and tortured, will the Government consider encouraging more use of the existing powers to prosecute in the United Kingdom terrorist offences committed elsewhere, and, if necessary, extending those powers?

Baroness Scotland of Asthal: My Lords, the noble Lord will know, because we have had delightful, extensive conversations on terrorism across the Dispatch Box and elsewhere in this House, that we are taking every proper step to address terrorism, eradicate it and keep this country safe. I am sure that we on all Benches will use every effort to pursue that end and make sure the citizens of our country are as safe as we can make them.

Lord Morgan: My Lords, is it not the case that the problems of deportation have arisen through maladministration in the Home Office, and are not at all the responsibility of the Human Rights Act, which is one of the glories of this country and something that has made it truly civilised?

Baroness Scotland of Asthal: My Lords, I take this opportunity to wish my noble friend a very happy birthday. Of course it is critical that we look with the greatest care at all issues of administration to make sure we have an administrative system that is as robust and effective as we can make it. That is something my right honourable friend the Home Secretary is determined to ensure we follow through on.

Baroness Oppenheim-Barnes: My Lords, is it not a fact that the Government have failed to protect the people of this country, and continue to do so? Until something sensible is done, or at least responsibility taken, that is going to continue, and it is outrageous.

Baroness Scotland of Asthal: My Lords, I wholeheartedly disagree with the noble Baroness. The Government have taken trenchant steps to make sure that this country is properly protected, often in the face of virulent opposition from Members opposite and the Liberal Democrats. We will continue to put the safety of the people of this country first, second and last.

Lord Dykes: My Lords, bearing in mind that the public rightly need continual reassurance on proper sentencing, deterrent and punishment, and that is the priority, does the Minister agree that that can all, none the less, be achieved under current arrangements without the Prime Minister having to dent severely the Human Rights Act 1998—which, as has already been said, is a precious instrument—just because he has thrown a wobbly over the Sun newspaper?

Baroness Scotland of Asthal: My Lords, I do not agree with the categorisation of the noble Lord, although I agree that we must do all we can to ensure that the criminal justice system is effective; that it has the confidence of the people we serve; and that we continue to deliver. The Prime Minister expressed a view echoed by many people in this country.

Lord Stoddart of Swindon: My Lords, as I understand the position, this matter has come to a head because the judges refused to extradite hijackers to Afghanistan, in spite of the fact that Afghanistan is now quite different from when they hijacked the plane. Will the noble Baroness make it absolutely clear that the Government deplore hijacking, will not tolerate it and will extradite those engaged in it under any circumstances?

Baroness Scotland of Asthal: My Lords, I am absolutely happy to say that the Government deplore hijacking. Noble Lords already know that an appeal is under way. Therefore I am unable to say anything else about that case until it is concluded.

Viscount Bledisloe: My Lords, will the noble Baroness enlighten the House as to the difference between deportation by the Government from this country and extradition from this country at the suit of another country? There seems to be some confusion.

Baroness Scotland of Asthal: My Lords, I do not think that there is any confusion. We have arrangements under the new Extradition Act, which clearly sets out the basis on which we will respond to requests made by a convention country or requesting state. There are clear rules, under our immigration and asylum legislation, dealing with deportation from this country.

Business

Lord Grocott: My Lords, with the leave of the House we shall have a Statement repeated this afternoon, at a convenient time after 5 pm. The Statement is about primary care trusts and ambulance trusts. It will be repeated by my noble friend Lord Warner.

Lighter Evenings (Experiment) Bill [HL]

Read a third time, and passed, and sent to the Commons.

Company Law Reform Bill [HL]

Lord Sainsbury of Turville: My Lords, I beg to move that the Bill be now further considered on Report.

Moved accordingly, and, on Question, Motion agreed to.
	Clause 502 [Special notice required for resolution removing auditor from office]:

Baroness Noakes: moved Amendment No. 336:
	Page 238, line 30, at end insert—
	"( ) The notice of the resolution must state the reasons for the proposed removal of the auditor from office."

Baroness Noakes: My Lords, Amendment No. 336 inserts a new subsection into Clause 502, which deals with the special notice procedure for removing an auditor from office. I am pleased to see that so many noble Lords are interested in this issue. My amendment requires the notice of the resolution to include the reasons for the proposed removal. In most cases members appoint auditors at the annual general meeting. In some cases the directors appoint new auditors if one resigns during the year. Quite rightly the auditors cannot be removed by the directors during the year; instead they must seek the members' approval. The auditors can submit their own representations, and in most cases the directors have to circulate them. However, the directors are not required to say why they are seeking a resolution to get rid of the auditors. Indeed, if the auditors prepare no representations, there might be no information at all available to shareholders, who need to decide how to cast their proxy votes, or whether to make the effort to attend the meeting.
	The current procedure seems designed to keep the shareholders in the dark, placing the entire burden of information on the auditors' representations. But the auditors are not seeking their own removal. In any event, the directors do not in all cases have to circulate the representations.
	A related point is Part 1 of Article 36 of the eighth directive, which the Minister told us in Grand Committee the Government do not know how to implement. This says that auditors must not be removed on the grounds of divergence of opinion on accounting treatments or audit procedures. It is highly likely that at present, when auditors are removed, it is precisely for these reasons. I rather suspect that the Government resisted my amendment in Grand Committee because it would make transparent the fact that auditor removal occurs in the very circumstances which will be prohibited by the directive.
	In Grand Committee, the Minister merely told us that implementing the directive caused problems because it might stop members getting rid of an auditor they no longer trust. The truth is that members have no role in initiating the removal of auditors, other than to approve the directors' recommendation. It is not the members' trust but that of the directors that is at issue. In the absence of members being protected from directors removing auditors if they disagree with them over auditing or accounting, we believe that the case for disclosure of reasons is doubly strong. I beg to move.

Lord McKenzie of Luton: My Lords, as has been outlined by the noble Baroness, at present a company is entitled to remove its auditor at any time by ordinary resolution and does not need to justify its decision. This provision is currently in Section 391 of the Companies Act 1985, and it is repeated here in Clause 501. The audit directive—the replacement for the eighth company law directive, which was finally adopted on 25 April—will oblige us to ensure that auditors may be dismissed only where there are proper grounds.
	We are implementing some of the new provisions in the new audit directive in this part of the Bill, notably those relating to the senior statutory auditor and to auditors' resignation statements. Other implementing provisions are to be found in Part 32. For the rest, we shall consult fully after publication of the final text of the directive before deciding how to implement it.
	The provision about the dismissal of auditors is difficult to implement in the UK. There is no distinction in the UK between the company and the members acting in general meeting. In other European jurisdictions, however, the general meeting of the members of the company can be an organ of the company, distinct from the company itself. The directive, or at least the provision in it about dismissal of auditors, appears to be predicated upon the distinction between the company and its members in accordance with which a company could act against the interests of the members by dismissing the auditors by resolution of the directors. This, however, is not possible in the UK, where not only is the company identical with the members in general meeting but it is only by resolution in general meeting that auditors may be dismissed. We shall need to do some work to find a way of constraining the company's ability to dismiss its auditors without preventing the members in general meeting being free to dismiss auditors in whom they no longer have confidence.
	In Grand Committee, and again today, it was suggested that it is fanciful to imagine the members deciding to get rid of an auditor, but in the real world the directors decide such a thing and the shareholders probably take little interest.
	It is important to remember that the provisions in UK company law and the audit directive about dismissal of auditors apply to all companies. It is not just about the small minority of companies with hundreds of thousands of shareholders; most of the companies affected are relatively small private companies, and in most of those the shareholders are few and engaged.
	At present, such shareholders can dismiss their auditor without having to justify their decision. We believe it is right that they should be able to do that, so we need to think carefully about how to implement the new audit directive. It has to be implemented by June 2008, and we see no reason for haste on this aspect. We need to consult those affected and to find the best way of doing it. We may find that we need to introduce a statement of reasons into a notice of a resolution for removal, as in Amendment No. 336; or we may be able to use the statement of reasons that the company has to send to the audit authority under Clause 514 when an auditor leaves. In any case, there will need to be some method by which the reasons are disclosed and recorded. But that in itself is not enough: to comply with the directive, we shall also have to provide a rule that the reasons must meet certain criteria, so as to be "good reason". We will somehow need to work in the reasons that according to the directive are not to be counted as good reason.
	We shall also need to decide whether to provide specific mechanisms for challenging the reasons given and whether to provide specific remedies in the event of reasons being found to be adequate or of challenges being found to be unjustified. It is our strong view that it would be best to work out the best overall approach to this requirement in the directive, to consult widely with all of those who will be affected and then to implement it as an overall solution rather than to introduce parts of a possible piecemeal approach. Accordingly, I ask the noble Baroness not to press the amendment.

Baroness Noakes: My Lords, will the noble Lord say something about the timescale for consultation and the manner in which the eighth directive will be implemented?

Lord McKenzie of Luton: My Lords, as I said, the directive has to be introduced by June 2008, so the consultation clearly has to take place between now and then. The process will be the normal one that applies. We expect it to consult all those who are interested in a wide and consistent manner. But it is important that we address each of the issues that I have outlined. I hope that the noble Baroness will accept that the amendment which is before us would not be particularly helpful standing alone without all those other issues that need to be looked at as part of the implementation of the directive.

Baroness Noakes: My Lords, I thank the Minister for that reply. I was disappointed by the highly legalistic nature of the arguments that he made. This, of course, is not an issue about private companies; it is fundamentally about companies with dispersed shareholdings and in particular those companies which have listings, because it is in those circumstances that there is a wider interest in the reasons for removal. But I will consider carefully what the Minister has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McKenzie of Luton: moved Amendment No. 337:
	Page 239, line 9, leave out from second "the" to end of line 10 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"

Lord McKenzie of Luton: My Lords, in moving Amendment No. 337, I wish to speak also to the other amendments in the group.
	In Grand Committee we agreed to take on board an amendment to what is now Clause 505, which was put forward by the noble Baroness, Lady Goudie, and supported by the noble Baroness, Lady Noakes.
	We have looked at the various places in the Bill where a company is obliged to circulate a statement made by an auditor who is ceasing to hold office. We have agreed that the test for whether a company can be relieved from its obligation should be if the auditor is seeking to secure,
	"needless publicity for defamatory matter".
	I am grateful to noble Lords who have put down similar amendments to four of the five clauses but I do not believe that the effect of them would be very different from our amendments. I suggest that we go with the wording provided by parliamentary counsel. I beg to move.

Baroness Noakes: My Lords, I have three amendments in this group. I am delighted that the Government took the measure away and brought forward their own better and more comprehensive amendments.

Baroness Goudie: My Lords, I am very happy with these government amendments. I will not move my amendment when we reach it.

On Question, amendment agreed to.
	Clause 505 [Failure to re-appoint auditor: special procedure required for written resolution]:

Lord McKenzie of Luton: moved Amendment No. 338:
	Page 240, line 22, leave out from "the" to end and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
	On Question, amendment agreed to.
	[Amendments Nos. 339 and 340 not moved.]
	Clause 506 [Failure to re-appoint auditor: special notice required for resolution at general meeting]:

Lord McKenzie of Luton: moved Amendment No. 341:
	Page 241, line 19, leave out from second "the" to end of line 20 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
	On Question, amendment agreed to.
	[Amendments Nos. 342 and 343 not moved.]
	Clause 509 [Rights of resigning auditor]:

Lord McKenzie of Luton: moved Amendment No. 344:
	Page 242, line 40, leave out from second "the" to end of line 41 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
	On Question, amendment agreed to.
	[Amendments Nos. 345 and 346 not moved.]
	Clause 510 [Statement by auditor to be deposited with company]:

Baroness Goudie: moved Amendment No. 347:
	Page 243, line 10, leave out from "of" to end of line 14 and insert "any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company, or if he considers that there are no circumstances, a statement that there are none"

Baroness Goudie: My Lords, in moving Amendment No. 347, I wish to speak also to my other amendment which is grouped with it.
	While the intention to change the existing Companies Act makes it more difficult for auditors to be candid about the circumstances of the loss of office, the proposed amendment reinstates the relevant voting. My second amendment makes Clause 506 redundant. I would like the Government to look at the matter again. I beg to move.

Baroness Noakes: My Lords, my name appears on Amendment No. 349, with that of the noble Baroness, Lady Goudie, but I also support her other amendments in this group.
	In Grand Committee the Minister explained that the Government positively wanted auditors of quoted companies to make a statement of circumstances connected with their leaving office. Amendment No. 349, to which I have added my name, makes it clear that this is a subjective test, which is an extremely important issue.
	In Grand Committee the noble Lord, Lord McKenzie, said that the objective test was correct because the auditors were protected from having committed an offence by having taken reasonable steps. I suggest that that misses the point. That defence addresses a different issue of whether they took reasonable steps to issue the statement, but it does not address the auditor setting out his own views and not the views of someone else, or some hypothetical auditor on the Clapham omnibus. The issue is that the statement should be of the circumstances that the auditor thinks are appropriate, so I support the amendments.

Baroness Goudie: My Lords, may I come back on Amendment No. 349 as well? The policy proposed by the Audit Quality Forum recommends a statement of the circumstances which the auditor considers are connected with his seeking to hold office. That qualification is important as it is a statement from the auditors and therefore involves judgment, and the current wording does not make that clear.

Lord Lyell: My Lords, I support the noble Baroness, Lady Goudie, and my noble friend in what they have said; particularly my noble friend, since she has considerable experience. Indeed, my own experience of auditing goes back rather like the admiral in that admirable musical "Evita" who says, "They still call me an admiral but I left the sea many years ago". It is vital that the auditor should have the freedom—I hope not the licence, but the freedom—to say what needs to be said and perhaps to give all the explanations and to put totally at rest any doubts with the company shareholders or indeed with the wider world; with others who might be interested. That is why my noble friend and indeed the noble Baroness, Lady Goudie, have addressed the matter with great clarity. I hope the Government will see their way to support it.

Viscount Bledisloe: My Lords, I would like to support Amendment No. 349. Although the distinction may seem initially to be very slight, to a lawyer I think it would be very substantial. The statement which an auditor makes under Clause 510(3) will be protected by privilege if he is sued for libel in respect of it. If the statement can relate only to the circumstances that were actually connected with his ceasing to hold office, he cannot express the circumstances where he feels that he has been removed because members of the company think that he is getting a little too close to the awkward truth.
	Surely what is needed is that he can say, "I feel that I am being removed because I am very unhappy about transaction xyz and I wish to investigate it further, and I think I am being removed because they don't want me to do that". If he can only say what has actually happened and not announce his suspicions he will be prevented by his partners from going down the latter route for fear of landing them in a massive defamation suit. Therefore, Amendment No. 349 is worthy of serious support.

Lord McKenzie of Luton: My Lords, I do not believe that there is anything in the clause as drafted that would prevent an auditor saying what he thought was appropriate if, in the terminology, he was getting close to the awkward truth.

Viscount Bledisloe: My Lords, I am not saying that he is prevented: he can say that he has been removed because they do not like his face. The question is whether the statement is made within the scope of the Act and therefore whether it is one for which he will receive qualified privilege. If he rambles on about the chairman's drinking habits or something, he is not forbidden from doing so, but it is hardly a statement within the scope of the Act. What is important is that he is allowed to make the statement that he needs to make, and to ensure that it is properly protected from defamation proceedings.

Lord McKenzie of Luton: My Lords, notwithstanding that, I still do not believe that anything in the Bill would prevent the auditor making a full statement on all the issues he believes are connected with his ability to hold office.
	Clause 510 deals with the important obligation on an auditor to provide an explanation of why he is no longer going to audit a company for the benefit of the shareholders and creditors. Auditors already have this duty, and the Bill modifies it so that it is more likely that an explanation will be provided. As we explained in Grand Committee, under Section 394 of the Companies Act 1985, an auditor who ceases to hold office for any reason is required to make a statement of the circumstances only if he positively considers that there are circumstances that should be brought to the attention of the members or creditors of the company he is leaving. By contrast, for unquoted companies, Clause 510 requires the auditor to make a statement as the general rule, with the exception that he need not make a statement if he positively decides that there are no circumstances to be brought to the attention of the members or creditors.
	As we explained in Grand Committee, we are making these changes because of the importance of ensuring that whenever auditors are leaving because they believe there is a problem with the accounts or with the management of the company, they should make that known to the shareholders and to the public. The change from the 1985 Act shifts the balance in favour of disclosure, not against it. An undecided auditor at present might persuade himself that there are no circumstances that he considers should be brought to the attention of the members or creditors. He may find it more difficult to persuade himself that there are no circumstances that need be brought to their attention.
	Amendments Nos. 347 and 348 would together revert the Bill to the existing position under the Act, and the Government continue to believe that the proposals in the Bill are an improvement and help disclosure. For quoted companies, the Bill provides that auditors who are leaving are to be required to make a statement of circumstances in all cases, without any option.
	Amendment No. 349 would change the content of the statement from
	"circumstances connected with his ceasing to hold office"
	to
	"circumstances which he considers are connected with his ceasing to hold office",
	which is the nub of the noble Baroness's point. This can be seen as weakening the requirement unnecessarily. It goes without saying that an auditor, or anyone else making a statement of circumstances, will inevitably use his judgment in deciding what is relevant to include. I do not believe that any risk here would be avoided by the amendment. As we said in Grand Committee, there is a defence for an auditor who took all reasonable steps and exercised all due diligence, but I accept the point made by the noble Baroness on the relevance of that provision.
	Given that defence, it is not clear whether there are circumstances in which the amendment would have a practical effect. I do not believe that there is a real problem to be solved. Nevertheless, in light of the opinions that have been expressed around the House, we will take this matter away and consider it further, because we want to ensure that we reach the right position. There is no disagreement about what we are trying to achieve. We do not see a need for the amendment, but, given the points made by all noble Lords who have spoken on this matter, I shall take it away and give it further thought, without commitment—it is an issue that we should discuss again at the next stage.

Baroness Goudie: My Lords, I thank the Minister and look forward to hearing from him at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 348 and 349 not moved.]
	Clause 511 [Company's duties in relation to statement]:

Baroness Noakes: moved Amendment No. 350:
	Page 244, line 1, leave out "the auditor of the application" and insert—
	"(a) the auditor, and
	(b) every person who under section 404 is entitled to be sent copies of the accounts.
	of the application."

Baroness Noakes: My Lords, this small amendment, which seeks to enhance the information that members receive about a departing auditor, was suggested by the UK Shareholders Association. In Grand Committee, the Government were keen to emphasise the relationship between members and the auditors; but that is something of a myth, because, in practice, the relationship is between the directors and the auditors. If the auditor leaves office for any reason, it is right that shareholders are informed.
	We support in principle Clause 511, which requires the company to circulate an auditor's statements of circumstances and will be an invariable requirement for quoted companies. But the company can apply to the court not to circulate the notice. If it does so, the shareholder is left completely in the dark until the court has made its decision. That could put weeks, or even months, into the process. My amendment merely asks that the shareholders and others entitled to receive the accounts are informed of the application to the court so that they are on notice that there is an issue.
	The very fact that there is a dispute between the outgoing auditors and the directors is an indication that shareholders should have concerns, especially if there should be—as the Government appear to believe—a relationship of trust and confidence between the shareholder and the auditor. It is nonsense to suggest, as the Minister did in Grand Committee, that an
	"astute shareholder will be aware of the resignation".—[Official Report, 14/3/06; col. GC 425.]
	That is simply not true and it is far from the truth for the vast majority of shareholders.
	If the Government believe that shareholders have a genuine role in the auditor/company relationship, they should welcome my amendment. I beg to move.

Lord McKenzie of Luton: My Lords, again we do not have a complete meeting of minds on this issue. As I said in Grand Committee, we have sympathy with the idea behind this amendment but, on balance, would prefer to leave arrangements as they are and not adopt it. As has been explained, Clause 511 puts a duty on a company to circulate the statement made by a departing auditor. It then provides the company with an opportunity not to circulate it if it can persuade the court that the auditor is abusing his right, or—as it is intended to be amended by the very next amendment, which we have already debated—if he is seeking to secure,
	"needless publicity for defamatory matter".
	There have apparently been cases where directors have gone to court for permission not to circulate an auditor's statement and not because they genuinely believed the auditor's purpose was to secure needless publicity for a defamatory matter. The directors hoped rather to delay the release of the auditor's statement because it included reasonable criticism of the directors that would be valuable to the shareholders. The directors' hope was that by the time the court had turned down their application, the auditor's statement would be stale and would not have the impact it would have had if circulated straightaway.
	In considering such a case, there is an argument that the company must inform the shareholders, although it is not clear how much good it does. All they learn extra is that the directors do not want to circulate to them the statement the auditors have made. This might be of interest to them but it may not be of great value. More importantly, we should look at the main purpose of the clause, which is to enable the company not to circulate material that is unnecessarily defamatory and unlikely to be of use to the shareholders. In such cases, it is plainly of no value to the company to have to go to the expense of informing all its shareholders that it has gone to court.
	Whereas we can see that there are cases where circulating this information might have some value, on balance we believe that it would generally have no value, and that it would therefore be inappropriate to force this extra expense on companies. I reiterate: we do have sympathy with the thrust of this point, but ultimately it is just a balance of which is the best way to take it forward. We would prefer to stick with the current formulation.

Baroness Noakes: My Lords, I thank the Minister for his reply. I accept that it is a question of balance between imposing unnecessary costs on companies on the one hand and on the other hand giving information to shareholders and perhaps even strengthening the hand of the auditors who might be being removed for reasons that are not entirely good. That has happened in the few cases which have gone to court to date where—certainly in the most recent one—the court punished the company by awarding costs against it. That did not go quite far enough because in that case the issue was kept from shareholders for a very long time.
	I accept that there is a point of balance and I will consult again with the UK Shareholders Association, but for today, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McKenzie of Luton: moved Amendment No. 351:
	Page 244, line 3, leave out from "is" to end of line 4 and insert "using the provisions of section 510 to secure needless publicity for defamatory matter"
	On Question, amendment agreed to.
	[Amendment No. 352 not moved.]
	Clause 513 [Copy of statement to be sent to appropriate audit authority]:

Baroness Noakes: moved Amendment No. 353:
	Page 245, line 3, leave out "and the company"

Baroness Noakes: My Lords, in moving Amendment No. 353, I shall speak also to the other amendments in my name in this group. This is a slightly complicated group of amendments because, as the House will see, the Government have tabled Amendments Nos. 361 and 362, which introduce two new clauses in place of Clause 513. These new clauses highlight the points made by my amendments in this group, but I fear that, far from answering them, they accentuate the points that I was making.
	We have been concerned about the duplication of information flows. Clause 513 and, indeed, the replacement clauses require both the auditor and the company to send identical information to the appropriate audit authorities. We do not believe in waste, and we can see no practical purpose for double information flows unless it is simply to provide evidence that either the company or the auditor has not done what Clause 513 requires for the purposes of a prosecution.
	I am aware that the information flows from a company are reduced in the Government's amendments but, unless the Minister makes a convincing case that these duplicate flows should remain, we shall have reservations about accepting the Government's amendments in this group.
	I have one question to put to the Minister about his Amendment No. 370, which is in the next group of amendments but has a bearing on these amendments. Amendment No. 370 defines the appropriate audit authority in subsection (1)(a) of the new clause after Clause 514. In the case of a major audit, this is either the Secretary of State or another body, which I believe will be the Public Oversight Board for Accountants. Can the Minister clarify whether it is for the company and the auditors under his new clauses to choose to whom the notifications and statements are sent? If so, what happens if the company sends material to the Secretary of State and the auditors send material to POBA? Do they have to check with each other and do they have to send information to one or both? Are we not creating the possibility of some dreadful paper chases between Whitehall and the City?
	We do not oppose the thrust behind Clause 513 and we agree that information about auditor resignations should be passed to the appropriate audit authorities. But we believe that the associated processes should be as efficient as possible and should be based on the principle of avoiding rather than creating bureaucracy. I beg to move.

Lord McKenzie of Luton: My Lords, I start by dealing with the specific question on Amendment No. 370 concerning which body is the appropriate audit authority in relation to a major audit. We believe that, where that delegation has taken place, it is the body to which the Secretary of State has delegated that function, which I think would now be the POB—the "A" has recently disappeared from its title. So we believe that there should be no confusion or duplication with the various flows going in two different routes, as the noble Baroness suggested might arise.
	I shall speak to Amendments Nos. 360, 361, 362, 498 and 500 and respond to the other amendments in this group that have already been spoken to. I shall move Amendment No. 360 and so on in due course. We have brought our amendments forward having reflected on the debate on Clause 513 in Grand Committee in relation to amendments similar to those to which the noble Baroness has spoken.
	Clause 513 introduces new requirements about the statements that auditors and companies must send to the appropriate audit authority when an auditor's appointment comes to an end. That is in line with the EU audit directive, which was agreed last year and formally adopted on 25 April.
	Debate in Grand Committee revealed that the clause is confusing in conflating the duties on the auditor and the company, and the purpose of the new clauses introduced by Amendments Nos. 361 and 362 is to set out these duties separately and clearly. The first new clause deals with the auditor's duty to inform the audit authority when he ceases to be auditor of a company and divides it into two categories, based on the type of company being audited.
	If it is a listed company, or another company of major public interest according to criteria issued by the Financial Reporting Council, all statements should be sent to the Secretary of State or to the body to which he has delegated auditor supervisory functions. As that delegation has taken place, it would be to the Professional Oversight Board.

Baroness Noakes: My Lords, can the Minister clarify this point? It is important and I would like to pursue it.
	Amendment No. 370 states that,
	"in the case of a major audit, the Secretary of State or the body to whom the Secretary of State has delegated functions".
	It does not indicate that it has to be the body to which the functions have been delegated. It implies that those persons lodging the appropriate statements can choose to which of those two they give them. The Minister repeated that point twice and I would like to be clear about it.

Lord McKenzie of Luton: My Lords, the drafting is not as clear as it might be on that point, but the provisions before us do not only deal with the current delegations that have taken place. Who knows what might happen in the future? That is why it is important to provide the alternative. I would like to repeat that and put in on record. If anything else is needed, I am happy to write on that matter. As that delegation has taken place, the POB is the body to which those submissions should be made.
	If the company that the auditor has left is an unlisted company and not otherwise of major public interest, a statement need only be submitted in the case of an auditor's resignation or dismissal by the company and the statement is sent to the auditor's own supervisory body—for example, one of the institutes of chartered accountants—rather than to the POB.
	The second new clause sets out the company's duties when its auditor resigns or when it dismisses its auditor. The company has to inform the appropriate audit authority and send it a statement. This can either be a copy of the auditor's statement or a separate statement by the company explaining the reasons for the auditor's departure.
	The reason why the company and auditor are both required to send their statements is that when an auditor resigns or is dismissed, it is quite possible that the auditor and the company will have different accounts of the circumstances. This is a requirement of the newly adopted audit directive.
	Amendments Nos. 354 and 355 would remove reference to the supervisory bodies so in practice all the statements would go to the POB. Burdening the POB—a relatively small organisation—with details of the circumstance of every auditor who resigns or is dismissed would not be of value.
	The relevant part of the audit directive refers to authorities responsible for public oversight and I am advised that the supervisory bodies can be included as they are part of the public oversight system for auditors. The supervisory bodies may have a closer interest in any case as some of the circumstances around dismissal may suggest a problem with an auditor, particularly if there is a pattern. Our intention is that the company should have the choice of whether to send any statement made by an auditor or to send its own. That is what the two paragraphs of subsection (2) of the new clause to be inserted by Amendment No. 362—linked by the word "or"—are meant to achieve.
	If the Secretary of State has delegated the functions of supervisory statutory auditors to a body, it is that body to which the auditor or the company should send their statement. That will be clear from the wording of Amendment No. 370, but we will reflect to see if anything further needs to be said. That is the clear intention and I am happy to put it on the record. I am grateful to the noble Baroness for probing this issue so we can be clear on it.

Baroness Noakes: My Lords, I thank the Minister for his reply and for updating me on the new name of what used to be called POBA. It just shows how difficult it is to keep up these days.
	I appreciate what the Minister has said. I would like to read it again in Hansard, but he has answered the point that I made on the duplication of information flow. I hope that he will look again at the drafting as it is ambiguous, whether or not there is a choice of which route information should go. If there is a choice, it is a recipe for administrative problems. I put it no higher than that. I beg leave to withdraw.

Amendment, by leave, withdrawn.
	[Amendments Nos. 354 to 359 not moved.]

Lord McKenzie of Luton: moved Amendment No. 360:
	Leave out Clause 513.
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendments Nos. 361 and 362:
	After Clause 513, insert the following new clause—
	"DUTY OF AUDITOR TO NOTIFY APPROPRIATE AUDIT AUTHORITY
	(1) Where—
	(a) in the case of a major audit, an auditor ceases for any reason to hold office, or
	(b) in the case of an audit that is not a major audit, an auditor ceases to hold office before the end of his term of office,
	the auditor ceasing to hold office must notify the appropriate audit authority.
	(2) The notice must—
	(a) inform the appropriate audit authority that he has ceased to hold office, and
	(b) be accompanied by a copy of the statement deposited by him at the company's registered office in accordance with section 510.
	(3) If the statement so deposited is to the effect that he considers that there are no circumstances in connection with his ceasing to hold office that need to be brought to the attention of members or creditors of the company, the notice must also be accompanied by a statement of the reasons for his ceasing to hold office.
	(4) The auditor must comply with this section—
	(a) in the case of a major audit, at the same time as he deposits a statement at the company's registered office in accordance with section 510;
	(b) in the case of an audit that is not a major audit, at such time (not being earlier than the time mentioned in paragraph (a)) as the appropriate audit authority may require.
	(5) A person ceasing to hold office as auditor who fails to comply with this section commits an offence.
	(6) If that person is a firm an offence is committed by—
	(a) the firm, and
	(b) every officer of the firm who is in default.
	(7) In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
	(8) A person guilty of an offence under this section is liable—
	(a) on conviction on indictment, to a fine;
	(b) on summary conviction, to a fine not exceeding the statutory maximum."
	After Clause 513, insert the following new clause—
	"DUTY OF COMPANY TO NOTIFY APPROPRIATE AUDIT AUTHORITY
	(1) Where an auditor ceases to hold office before the end of his term of office, the company must notify the appropriate audit authority.
	(2) The notice must—
	(a) inform the appropriate audit authority that the auditor has ceased to hold office, and
	(b) be accompanied by—
	(i) a statement by the company of the reasons for his ceasing to hold office, or
	(ii) if the copy of the statement deposited by the auditor at the company's registered office in accordance with section 510 contains a statement of circumstances in connection with his ceasing to hold office that need to be brought to the attention of members or creditors of the company, a copy of that statement.
	(3) The company must give notice under this section not later than 14 days after the date on which the auditor's statement is deposited at the company's registered office in accordance with section 510.
	(4) If a company fails to comply with this section, an offence is committed by—
	(a) the company, and
	(b) every officer of the company who is in default.
	(5) In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.
	(6) A person guilty of an offence under this section is liable—
	(a) on conviction on indictment, to a fine;
	(b) on summary conviction, to a fine not exceeding the statutory maximum."
	On Question, amendments agreed to.
	Clause 514 [Information to be given to accounting authorities]:

Lord McKenzie of Luton: moved Amendment No. 363:
	Page 246, line 4, leave out subsection (1) and insert—
	"(1) The appropriate audit authority on receiving notice under section (Duty of auditor to notify appropriate audit authority) or (Duty of company to notify appropriate audit authority) of an auditor's ceasing to hold office—
	(a) must inform the accounting authorities, and
	(b) may if it thinks fit forward to those authorities a copy of the statement or statements accompanying the notice."

Lord McKenzie of Luton: My Lords, in moving government Amendment No. 363, I shall speak also to government Amendments Nos. 369 and 370 and the other amendments in the group.
	Clause 514 provides for the audit authority—typically POB or one of the supervisory bodies—on receiving statements from an auditor who is ceasing to audit a company to inform the accounting authorities; that is, the Secretary of State and his delegate, currently the FRRP.
	Amendments Nos. 363, 369 and 370 are technical amendments, mainly consequential on the government amendments in the group we have just discussed. Unless there are questions about them, I shall move on to discussing the other amendments in the group.
	On reviewing the debate on the similar amendments in Grand Committee, I think that there may have been some misunderstanding about the Government's intentions in Clause 514. The statements made by resigning or otherwise departing auditors and the corresponding companies are to be sent to the audit authorities because their role is to oversee auditors, and they should take an interest in the reasons for their dismissal or resignation.
	On occasions, it is possible that these statements will reveal that the auditors believe that there has been some significant accounting irregularity and, when it happens, we think it appropriate for the audit authority to bring it to the attention of the accounting authorities. The Financial Reporting Review Panel will want to know about such accounting irregularities, as will the Department of Trade and Industry. The FRRP may want to apply to the court for an order requiring revision of the accounts. On the other hand, the DTI can consider investigation, inspection or prosecution. There are two accounting authorities mentioned in the Bill because they have different roles and powers.
	The FRRP will not want to receive statements about most situations where the auditor and company may have had a difference of view but where the published accounts have been agreed. Nor will the DTI, so the task we are giving the DTI is not to deal with a flood of paperwork of modest interest, as I think was suggested in Grand Committee, but to receive occasional reports of serious irregularities.
	I am sorry that we did not explain what was envisaged more clearly in the Explanatory Notes or in Grand Committee. I hope that, with this explanation, the noble Baroness will accept that it is entirely reasonable that the audit authorities should have discretion about what statements to forward to the audit authorities, and that those few statements that are worth sending should go to both the FRRP and the DTI. I beg to move.

Baroness Noakes: had given notice of her intention to move, as an amendment to Amendment No. 363, Amendment No. 364:
	Line 5, leave out "authorities" and insert "authority"

Baroness Noakes: My Lords, the Minister has dealt much better on Report with the issues raised by the amendments in this group than he did in Grand Committee. Had he given that explanation in Grand Committee, I would not have tabled the amendments at this stage. As the noble Lord knows, I am a fighter against waste in government and I was seeking to avoid the DTI creating a new department of auditor resignations, replete with staff at all grades, ready with their filing systems and processes to take lots of reports. In the light of the Minister's explanation, I am satisfied on that point and I shall not move the amendment.

[Amendment No. 364, as an amendment to Amendment No. 363, not moved.]
	[Amendments Nos. 365 and 366, as amendments to Amendment No. 363, not moved.]
	On Question, Amendment No. 363 agreed to.
	[Amendments Nos. 367 and 368 not moved.]

Lord McKenzie of Luton: moved Amendment No. 369:
	Page 246, line 15, leave out "under section 513"
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 370:
	After Clause 514, insert the following new clause—
	"MEANING OF "APPROPRIATE AUDIT AUTHORITY" AND "MAJOR AUDIT"
	(1) In sections (Duty of auditor to notify appropriate audit authority), (Duty of company to notify appropriate audit authority) and 514 "appropriate audit authority" means—
	(a) in the case of a major audit, the Secretary of State or the body to whom the Secretary of State has delegated functions under section 846 or 847 of this Act;
	(b) in the case of an audit that is not a major audit, the relevant supervisory body.
	(2) In sections (Duty of auditor to notify appropriate audit authority) and this section "major audit" means a statutory audit conducted in respect of—
	(a) a company any of whose securities have been admitted to the official list (within the meaning of Part 6 of the Financial Services and Markets Act 2000 (c. 8)), or
	(b) any other person in whose financial condition there is a major public interest.
	(3) In determining whether an audit is a major audit within subsection (2)(b), regard shall be had to any guidance issued by any of the authorities mentioned in subsection (1)."
	On Question, amendment agreed to.
	Clause 515 [Effect of casual vacancies]:

Lord McKenzie of Luton: moved Amendment No. 371:
	Page 246, line 24, leave out from beginning to "any" and insert "If an auditor ceases to hold office for any reason,"

Lord McKenzie of Luton: My Lords, I was wondering whether we might have an extensive debate on the definition of "casual vacancies", but I hope that the House will accept that this is a small but useful technical drafting improvement. It was proposed by the noble Baroness, Lady Noakes, in Grand Committee and, on reflection, we have seen the light and its merits. I beg to move.

On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 372:
	After Clause 519, insert the following new clause—
	"MEANING OF "QUOTED COMPANY"
	(1) For the purposes of this Chapter a company is a quoted company if it is a quoted company in accordance with section 363 (quoted and unquoted companies for the purposes of Part 15) in relation to the financial year to which the accounts to be laid at the next accounts meeting relate.
	(2) The provisions of subsections (4) to (6) of that section (power to amend definition by regulations) apply in relation to the provisions of this Chapter as in relation to the provisions of that Part."

Lord McKenzie of Luton: My Lords, this is a minor technical amendment. It brings the definition of a quoted company in Part 15, including the provisions for amending that definition, into chapter 5 of Part 16. I beg to move.

On Question, amendment agreed to.
	Clause 520 [Provisions protecting auditors from liability]:

Lord Goldsmith: moved Amendment No. 373:
	Page 248, line 31, after "company" insert "occurring in the course of the audit of accounts"

Lord Goldsmith: My Lords, I will also speak to the nine other government amendments to chapter 6 of Part 16. In Committee, I agreed that we would take these provisions away. We believe that, together, the amendments clarify and improve the provisions on auditors' liability. They will both meet the concerns that were expressed in Committee and achieve the effects intended by the other 13 amendments to this chapter.
	For the record, the other government amendments that I need to speak to are Amendments Nos. 374 and 375, 379 to 381, 387, 391, 392 and 394. I will also speak to Amendments Nos. 376 to 378, 382 to 386, 388 to 390 and 393, and in due course Amendment No. 391A, which is grouped with them.
	The main changes intended by the government amendments are these. In the new clause to be inserted after Clause 522 by Amendment No. 380, subsection (4) would make it clear that liability limitation agreements can be expressed in any way and are not—as some feared might be the case, based on earlier wording—restricted to being expressed as pure monetary amounts or such amounts expressed with reference to a formula.
	Amendment No. 391 clarifies that, when the court is considering what is "fair and reasonable", it should not take into account,
	"the possibility of recovering compensation from",
	any other people involved, nor any other,
	"matters arising after the loss or damage . . . has been incurred".
	I hope your Lordships will agree that those two changes improve the drafting of how these clauses achieve the intended policy objective. Noble Lords had raised a number of concerns about possible misinterpretation of the text, so we thought it best to try and put that beyond doubt.
	In addition, subsections (2) and (3) of the new clause inserted by Amendment No. 380 introduce a new power for the Secretary of State to make regulations about how liability limitation agreements are expressed. I should explain why we propose to bring that in. It has been suggested to us, mainly by the mid-tier accountancy firms, if I may so describe them, that there is a risk of liability limitations developing in a way that would damage competition in the audit market—particularly if limitations are expressed as fixed monetary amounts. While we would not expect liability limitations to have that effect on the market, we have thought it prudent to take this power so as to be able to respond if there should be problems. In that way, it would enable us to bring forward regulations that either prescribe what sort of provisions must be included in agreements, or specify provisions which must not be so included.
	There are a number of more minor improvements in the drafting of these provisions that I will be happy to explain in detail if necessary. Meanwhile, I beg to move.

Baroness Noakes: My Lords, I have many amendments in this group which I tabled again because we were advised by those affected by the provisions that the Government's original drafting would not achieve the result that people wanted, which they thought had been agreed—proportionate liability agreements. I am very pleased that the Government have tabled their amendments in this group. As I understand it, there is now substantial agreement across the piece that the clauses that we shall have after the amendments are passed satisfactorily achieve limitation of liability provisions.
	On behalf of all those who have been involved in discussions with the Government, I place on record their thanks for the positive and constructive way in which the Government have dealt with the issue. It marks a real move forward. I am also grateful for what the noble and learned Lord said about taking power to deal with issues that may arise from the competitive impact if fixed-sum capping ever produced a competitive disadvantage to certain types of firm. I am sure that that is the right way forward.
	I do not need to speak to the majority of my amendments in this group, but I shall speak to Amendment No. 391A, which amends government Amendment No. 391. It is a probing amendment. Amendment No. 391 responds to concern about when fairness and reasonableness of the agreement is to be determined. The government amendment states that,
	"no account is to be taken of . . . matters arising after the loss or damage . . . has been incurred".
	The issue is what that actually means. Loss or damage is normally suffered rather than incurred but, if we leave that on one side, we are unclear whether that is intended to mean the point at which the course of action arises—hence, when the damage first occurs—or the last date at which damage occurs. Damage flowing from the course of action will often take place over a long period. Indeed, it may be continuing at the time that the court considers the issue.
	I ask the Minister to set out clearly what the Government intend to be the effect of Amendment No. 391. If they agree that there is undesirable ambiguity in their amendment, I invite them either to agree to Amendment No. 391A—which, I accept, is unlikely—or to table something else at Third Reading.

Lord Sharman: My Lords, I shall not repeat everything that the noble Baroness said about our thanks for how the Government have responded to the concerns expressed in Committee. We now have a workable series of clauses that respond to our original concerns. Although my name is not attached to Amendment No. 391A, the issue that remains—albeit one for which there should be an explanation—is from what point in time the damage accrues. In these sorts of cases, we will be dealing with loss or profit, which may continue over a long period—for example, if an audit mistake is made at point X but the claim is that the profits or losses occurred sometime after that. An explanation of that will be very valuable.

Viscount Bledisloe: My Lords, can the Minister enlighten me on one point? Suppose that an auditor is invited to take on an audit at short notice in an emergency—let us say, because the previous auditor has walked out—and he says, "I am prepared to do this only with a liability limitation agreement". The company says, "We quite understand that", and gives him the agreement. He must start work immediately, because time is pressing. When it gets to the general meeting, the motion is not passed, so he says, "I will give up". If he is sued in respect of negligence in that intervening period because of the work that he has or has not done, is he to be deprived of the benefit of the agreement, which is the only basis on which he entered into the work?

Lord Goldsmith: My Lords, let me first try to deal with the question raised by the noble Viscount, Lord Bledisloe. In the example that he gave, which I heard for the first time only a few seconds ago, the auditor will never have completed the task because he is unhappy that the company has not signed off on the agreement that he had. If he has not completed the task, any claim against him for negligence will be quite difficult to bring in any event, because the auditor will be able to say, "Well, you're complaining that I didn't do this or do that, but I never got to the end of the audit, so it isn't really fair to criticise me at all". The court would have to sort that out in those circumstances.
	The counsel for the auditor is to say in those circumstances that, if the auditor is not prepared to do the work without that limitation agreement, he should not do it until it has been approved by the company. It does not have to wait for an annual general meeting; there are other ways of doing it. If the company's directors are so concerned to get the auditor on board, they will have to take steps to ensure that the auditor has the protection which the noble Viscount described in his example as the only basis on which he is prepared to work.
	I turn to the points made by the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman. I appreciate their welcome for the Government's amendments. I am pleased that we have reached that position. I turn to Amendment No. 391A. We make a deliberate choice of timing. We pick the moment when the loss or damage has been incurred rather than the cause of action. Sometimes, those will occur at the same moment; sometimes, they will not. They might occur at the same moment if the cause of action is put not in contract but in tort. In tort, until the damage is suffered, the cause of action is not complete. In that event, the cause of action and the incurring or suffering of the loss would be coterminous. In contract, it may not be.
	In proposing the amendment, the Government were seeking to recognise the fundamental concern raised in Grand Committee. It was, as I recall it, that if you allow all circumstances to be taken into account, the risk is that by the time you get to court, it will be apparent that the only person who has got any money to meet the judgment is the auditor; all the rest will have gone off wherever they have gone or be out of any money. The risk is that the court would say that it is reasonable, having regard to the fact that the only pocket left is that of the auditor, that the auditor should pay for everything and the liability agreement should be set aside. That is the concern with which we were seeking principally to deal by stating that one can have regard to matters up to the time that the loss is suffered. However, it is right to be able to take account of circumstances arising in between breach of contract and the loss being incurred.
	I give one example. The auditor might break his contract one year, but nothing is discovered until the following year. As noble Lords will know, it is not unusual for a problem to become apparent in the course of the following audit. It may be reasonable to take into account, when deciding whether the agreement should stand, that it was the auditor himself who discovered the error the following year, who brought it to the attention of the company and who perhaps took steps to deal with the consequences. If, on the other hand, the auditor spotted the problem but did not deal with it and allowed the problem to get worse, it might be reasonable for the court to take that into account in deciding whether the limitation agreement was right.
	No solution is absolutely perfect in this respect—I acknowledge one or two of the examples that were given by the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman—but putting the time bar where we propose meets the thrust of the concerns that were previously expressed about the clause. On that basis, I hope that the noble Baroness will be content with the amendment as it stands. I do not think that there are any other points which I need to address. I commend the amendment to the House.

On Question, amendment agreed to.

Lord Goldsmith: moved Amendments Nos. 374 and 375:
	Page 248, line 36, at end insert "occurring in the course of the audit of accounts"
	Page 248, line 40, leave out "527" and insert "(Authorisation of agreement by members of the company)"
	On Question, amendments agreed to.
	Clause 522 [Liability limitation agreements]:
	[Amendments Nos. 376 to 378 not moved.]

Lord Goldsmith: moved Amendment No. 379:
	Leave out Clause 522 and insert the following new Clause—
	"LIABILITY LIMITATION AGREEMENTS
	(1) A "liability limitation agreement" is an agreement that purports to limit the amount of a liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of accounts, of which the auditor may be guilty in relation to the company.
	(2) Section 520 (general voidness of provisions protecting auditors from liability) does not affect the validity of a liability limitation agreement that—
	(a) complies with section (Terms of liability limitation agreement) (terms of liability limitation agreement) and of any regulations under that section, and
	(b) is authorised by the members of the company (see section (Authorisation of agreement by members of the company)).
	(3) Such an agreement—
	(a) is effective to the extent provided by section 524, and
	(b) is not subject—
	(i) in England and Wales or Northern Ireland, to section 2(2) or 3(2)(a) of the Unfair Contract Terms Act 1977 (c. 50);
	(ii) in Scotland, to section 16(1)(b) or 17(1)(a) of that Act."
	On Question, amendment agreed to.

Lord Goldsmith: moved Amendment No. 380:
	After Clause 522, insert the following new clause—
	"TERMS OF LIABILITY LIMITATION AGREEMENT
	(1) A liability limitation agreement—
	(a) must not apply in respect of acts or omissions occurring in the course of the audit of accounts for more than one financial year, and
	(b) must specify the financial year in relation to which it applies.
	(2) The Secretary of State may by regulations—
	(a) require liability limitation agreements to contain specified provisions or provisions of a specified description;
	(b) prohibit liability limitation agreements from containing specified provisions or provisions of a specified description.
	"Specified" here means specified in the regulations.
	(3) Without prejudice to the generality of the power conferred by subsection (2), that power may be exercised with a view to preventing adverse effects on competition.
	(4) Subject to the preceding provisions of this section, it is immaterial how a liability limitation agreement is framed.
	In particular, the limit on the amount of the auditor's liability need not be a sum of money, or a formula, specified in the agreement.
	(5) Regulations under this section are subject to negative resolution procedure."
	On Question, amendment agreed to.
	Clause 523 [Authorisation of agreement by members of the company]:

Lord Goldsmith: moved Amendment No. 381:
	Leave out Clause 523 and insert the following new Clause—
	"AUTHORISATION OF AGREEMENT BY MEMBERS OF THE COMPANY
	(1) A liability limitation agreement is authorised by the members of the company if it has been authorised under this section and that authorisation has not been withdrawn.
	(2) A liability limitation agreement between a private company and its auditor may be authorised—
	(a) by the company passing a resolution, before it enters into the agreement, waiving the need for approval,
	(b) by the company passing a resolution, before it enters into the agreement, approving the agreement's principal terms, or
	(c) by the company passing a resolution, after it enters into the agreement, approving the agreement.
	(3) A liability limitation agreement between a public company and its auditor may be authorised—
	(a) by the company passing a resolution in general meeting, before it enters into the agreement, approving the agreement's principal terms, or
	(b) by the company passing a resolution in general meeting, after it enters into the agreement, approving the agreement.
	(4) The resolution required is an ordinary resolution, subject to any provision of the company's articles requiring a higher majority (or unanimity).
	(5) The "principal terms" of an agreement are terms specifying, or relevant to the determination of—
	(a) the kind (or kinds) of acts or omissions covered,
	(b) the financial year to which the agreement relates, or
	(c) the limit to which the auditor's liability is subject.
	(6) Authorisation under this section may be withdrawn by the company passing an ordinary resolution to that effect—
	(a) at any time before the company enters into the agreement, or
	(b) if the company has already entered into the agreement, before the beginning of the financial year to which the agreement relates.
	Paragraph (b) has effect notwithstanding anything in the agreement."
	On Question, amendment agreed to.
	[Amendments Nos. 382 and 383 not moved.]
	Clause 524 [Effect of liability limitation agreement]:
	[Amendments Nos. 384 to 386 not moved.]

Lord Goldsmith: moved Amendment No. 387:
	Page 250, line 13, after "regard" insert "(in particular)"
	On Question, amendment agreed to.
	[Amendments Nos. 388 to 390 not moved.]

Lord Goldsmith: moved Amendment No. 391:
	Page 250, line 20, at end insert—
	"( ) In determining what is fair and reasonable in all the circumstances of the case no account is to be taken of—
	(a) matters arising after the loss or damage in question has been incurred, or
	(b) matters (whenever arising) affecting the possibility of recovering compensation from other persons liable in respect of the same loss or damage."
	[Amendment No. 391A, as an amendment to Amendment No. 391, not moved.]
	On Question, Amendment No. 391 agreed to.
	Clause 526 [Exclusion of agreements for more than one year]:

Lord Goldsmith: moved Amendment No. 392:
	Leave out Clause 526.
	On Question, amendment agreed to.
	Clause 527 [Termination of agreement by members of company]:
	[Amendment No. 393 not moved.]

Lord Goldsmith: moved Amendment No. 394:
	Leave out Clause 527.
	On Question, amendment agreed to.
	Clause 528 [Minor definitions]:

Lord Goldsmith: moved Amendment No. 395:
	Page 251, line 41, leave out subsection (2).
	On Question, amendment agreed to.
	Clause 529 [Prohibition of public offers by private company]:

Lord McKenzie of Luton: moved Amendment No. 396:
	Page 252, line 26, leave out subsection (5).

Lord McKenzie of Luton: My Lords, we have reached Part 17, which contains the prohibition on private companies offering their shares to the public. I am moving these amendments in response to the concerns raised in Grand Committee on the prescriptive nature of the remedies following breach of the prohibition. I will also explain why these amendments are preferable to the noble Lord's related amendment.
	Under Clause 532, the court must make an order for the company to reregister as a public company unless it appears to the court that the company does not meet the requirements for reregistration and it is impracticable or undesirable to require it to take steps to do so. If the court does not make an order for reregistration, it must instead make an order for the compulsory winding-up of the company. The amendments provide the court with further alternatives if an order for reregistration is not made.
	The starting position remains that if it appears to the court that the company has acted in contravention of the prohibition on public offers, the court must order the reregistration of the company as a public company unless the company does not meet the requirements for reregistration and it is impractical or undesirable to require it to take steps to do so. Members cannot frustrate the company from seeking to comply with a reregistration order.
	The court will have all its usual powers available for the enforcement of its orders. Where the court does not order reregistration, the amendments give the court a choice. It might decide to make an order for the compulsory winding-up of the company, or the court may make a remedial order for the purpose of putting anyone affected by the breach of the public offer prohibition back in the position they would have been in if the breach had not occurred. In particular, under a remedial order, the court can order those persons knowingly concerned in the breach to offer to purchase the shares or debentures that were the subject of the offer on such terms as the court thinks fit, or the court has discretion to make no order at all. This might be appropriate, for example, where the company has breached the prohibition but has not allotted shares, has withdrawn the offer and has undertaken not to do it again. These amendments greatly widen the options available to the court following a breach of the public offer prohibition where reregistration is not appropriate. All the other government amendments in this group are consequential on the new options given to the court.
	Amendment No. 408 would allow the court to make such order as it thought fit. It would give the court a wide discretion but without any assistance as to how it might use it. The amendment goes unnecessarily far, moving away from the consistency of approach we have been aiming to achieve. The government amendments provide a framework for the court—one wide enough for the orders that may be made when reregistration is not appropriate, including the option of making no order at all. The government amendments address the concerns raised in Grand Committee and I hope noble Lords will not press Amendment No. 408. I beg to move.

Lord Sharman: My Lords, I thank the Minister for the response that the Government have made to the concerns I raised in Committee. Amendment No. 408 was proposed to us by the Law Society. I accept that it is a wide enabling amendment. I would like to consider carefully the impact of the government amendment and, if appropriate, return to this on Third Reading, but in the circumstances I will not move the amendment at this stage.

On Question, amendment agreed to.
	Clause 530 [Meaning of "offer to the public"]:

Lord Sainsbury of Turville: moved Amendment No. 397:
	Page 252, line 30, leave out from "in" to "by" in line 31 and insert "this Chapter"
	On Question, amendment agreed to.

Lord Sharman: moved Amendment No. 398:
	Page 252, line 36, leave out "calculated" and insert "intended"

Lord Sharman: My Lords, I rise to move Amendment No. 398 and to speak to Amendments Nos. 399 to 403. These amendments go back to an issue we raised in Committee. The amendments, all in Clause 530, deal with the intention behind the issue of shares. The purpose is to ensure that a test should be one of intent, rather than an objective test of whether the securities are likely to get into the hands of the public at some stage in the future.
	Amendments Nos. 398, 401 and 403 propose that "calculated" be replaced by "intended". In Grand Committee, the noble Lord, Lord McKenzie, rejected these arguments by giving us an explanation from the Oxford English Dictionary—the meaning of "calculated to" was "designed or suitable, intended". He went on to say that,
	"if it came to court, an objective assessment would be required of whether the motivation or purpose behind the offer was to make the shares . . . available".
	He added:
	"it is not a question of how likely or probable it was that the shares would become available to other persons",
	and said that,
	"we want the provision to provide an objective test of intentions".—[Official Report, 14/3/06; cols. GC 462-63.]
	However, I am advised that there is judicial authority to the effect that "calculated to" means "likely to" and not "intended to". That is apparent from the judgment of Dyson J in Norweb plc v Dixon. There is clearly therefore a conflict between the view of the courts and the view of the Oxford English Dictionary as interpreted by the noble Lord. To clarify the position, we feel that the Bill should be amended to use "intended" rather than "calculated", since this is the meaning that the Government intend.
	Amendments Nos. 399, 400 and 402 are to address the effect of shares or debentures becoming available to third parties outside the arrangements relating to the offer. Again, in Grand Committee the noble Lord, Lord McKenzie, accepted that a company should not be held responsible for what the recipients of shares or debentures do with them after they have received them, as long as part of the arrangements or understanding reached at the time the offer was made was not that the shares or debentures would be passed on. These amendments are proposed in order to give effect to that view.
	We are concerned that the clause, as now drafted, goes further than the existing law—under Section 724A of the Companies Act 1985—and adds further restrictions on the ability of a private company to make a rights issue or to offer shares under an employee share scheme. I have said enough on that, but if no law is intended, we are too restrictive in what we have. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, although my name is not on these amendments, I think that the points the noble Lord, Lord Sharman, is driving at are sensible. I, too, have read carefully the definitions that the noble Lord, Lord McKenzie, read out to us from the Oxford English Dictionary in Grand Committee, but I do not think they answer the reality of what is going on in the City. Indeed, clarity in this area is very important because it is a critical part of the finance-raising function of the City of London. I hope the Government will look sympathetically at what the noble Lord has said.

Lord McKenzie of Luton: My Lords, the nub of the debate is whether we believe there should be an objective or subjective test, whatever wording we use to express that. The Government are clear that we should maintain, as at present, the objective test.
	When we discussed these amendments in Grand Committee, I explained why we do not wish to replace the word "calculated" with "intended". I maintain that "calculated" is the correct word for the purposes of Clause 530. The phrase,
	"properly be regarded, in all the circumstances, as . . . not being calculated to result, directly or indirectly, in securities of the company becoming available to persons other than those receiving the offer",
	imposes an objective test. If it came to court, an objective assessment would be required of whether the motivation or purpose behind the offer was to make the shares or debentures available to persons other than those receiving the offer.
	I am aware that the Law Society has raised the case of Norweb plc v Dixon, in which the court said that "calculated" means "likely" and does not mean "intended". The test imposed by the word "calculated" is not one of actual intention, which is what was being alleged in Norweb plc v Dixon, but nor is it purely a test of mechanical likelihood. It cannot possibly be solely a question of likelihood as, in almost all cases, it is likely that the shares will one day be transferred.
	The test is whether a person looking objectively at the facts would conclude that it was intended. Amending "calculated" to "intended", as the amendments propose, would make a big change to the operation of the clause. It would replace the objective test with a wholly subjective test of intention. Rather than reaching a judgment as to what a reasonable person would conclude was the intention, the courts would require proof of actual intention. It would be very easy for those behind the offer to stand up and claim that nothing of the sort was intended, and very difficult for anyone to contradict them. Actual intentions would often be extremely difficult for those not directly involved to prove, rendering many breaches virtually unenforceable.
	Likelihood is, of course, relevant to any objective assessment of intent, but it is by no means the sole factor or only way of establishing apparent intent. The likelihood of the shares becoming available to the public is simply one of the things that might be relevant, such as what was said and done at the time. It all goes to the evidence enabling the court to make its judgment. The courts will take into account the circumstances of the offer in their entirety, not only the likelihood of the shares becoming available to other persons.
	"Calculated" is not the same as "likely" or "intended". If we wanted to mean precisely either of those things and nothing else, we agree that it would be better to say so. But we do not. The word has been quite deliberately chosen and has been used in this context for a long time. The law currently requires an objective assessment of intent. The Bill takes the same approach. I hope that the noble Lord will not press the amendment because it would change significantly the current position.
	In seeking to clarify subsection (3), Amendment No. 399 risks widening it. Subsection (3) is an exemption setting out circumstances in which an offer will not be regarded as an offer to the public. In order to fall within the exemption, the offer must not be calculated to result in the shares or debentures becoming available to persons other than those receiving the offer. Of course, shares may be offered in the knowledge that they may one day be sold on. Companies do not have to impose restrictions on the transferability of their shares in order to take advantage of the exemption. But the exemption is not to be used as a means of evading the public offer prohibition by offering shares to a particular person, simply so that they can then offer them on to other people. It is a matter of the link or connection between the offer and the subsequent transfer of the shares to other persons. If there is no real link between the two, other than the fact of issuing the shares, the exemption may apply. Where there is a close connection between both events, however, of which formal agreements or mutual arrangements are probably the strongest example, the exemption should not apply.
	The amendment focuses too narrowly on arrangements for understandings reached as part of the offer. The perspective of the company offering the shares can also be relevant, whether or not it amounts to an arrangement or understanding shared by the recipient of the securities. The amendment restricts the circumstances the court can look at to the offer itself and arrangements or agreements made in connection with it. It may be difficult to show the existence and contents of such arrangements or understandings. It is surely preferable that the court should be able to have regard to all the circumstances, as the opening words of the exemption provide.
	I turn now to the other amendments to delete subsections (4)(c) and (5)(c) in Clause 530. Subsection (4) provides that an offer is not to be regarded as an offer to the public if certain requirements are met. It is an exemption for offers made to persons already connected with the company. One of the requirements is that the offer must not be calculated to result in the shares or debentures becoming available to persons already connected with the company.
	The exemption set out in subsection (4) is expressed rather differently in Section 742A of the Companies Act 1985, from which this exemption is derived. Our intention was to set out more clearly how the exemption operated, but in doing so we agree that subsection (4)(c) has departed from the current law. Therefore we agree that the approach of the present law should be reinstated. That is not simply a matter of deleting subsection (4)(c); it will be necessary to put back in its place the elements of the current law that the subsection was intended to replace, and it might not be straightforward to draft. The same applies to subsection (5)(c). We therefore agree to consider Amendments Nos. 400 and 402.
	I hope the noble Lord will withdraw Amendment No. 398 and will not press Amendments Nos. 399 to 403. I cannot stress strongly enough that what is proposed here would be a significant change in the law from the current position, and we do not believe that is the right way to go.

Lord Sharman: My Lords, I am grateful for that very full reply from the Minister, and for his acknowledgement that the amendments he mentioned will be looked at. I hope that the Government will be bringing forward their own amendments to deal with those issues.
	In my mind, the issue is still unresolved. I would like to read carefully what the Minister has said and then take some advice on it, but it seems that we have a conflict between the Law Society and the Government, and I would like to reflect further on that.

Lord McKenzie of Luton: My Lords, before the noble Lord sits down, can we agree that there may be some discussion about what is the appropriate wording to produce what we intend to be the law? Will the noble Lord accept that the current law requires an objective test, and that the Government's position is that that is what we want to maintain? Does he also accept that going down the route of a subjective test is a change from the current position?

Lord Sharman: Yes, my Lords, I do. The only issue between us is precisely the one he mentioned up front; that is, the question of whether the words reflect what we are seeking to achieve. In the opinion of the Law Society that is not the case. I will look at what he said, and I will probably discuss it with the Law Society before I decide whether I wish to push the thing any further. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 399 to 403 not moved.]

Lord Razzall: moved Amendment No. 404:
	Page 253, line 33, at end insert—
	"(8) An offer is not regarded as an offer to the public if—
	(a) it is made to fewer than 100 persons,
	(b) it is made on terms allowing the person to whom it is made to renounce his rights, which may only be renounced in favour of a person connected with the company or another person to whom the offer is made, and
	(c) it cannot properly be regarded, in all circumstances, as being intended to result, directly or indirectly, in securities of the company becoming available to persons other than those receiving the offer or persons not already connected with the company.
	(9) The Secretary of State may by regulations specify other conditions applicable to an offer which, to the extent satisfied, would result in an offer not being deemed to be an offer to the public for the purposes of this section 526.
	(10) Any such regulations, as set out in subsection (9), shall be subject to affirmative resolution procedure."

Lord Razzall: My Lords, this is another amendment to Clause 530, which defines what is meant by an offer to the public with regard to the prohibition of public offers by a private company. The starting point for this amendment is the point I made in Grand Committee; that the current interplay of the various regulations creates uncertainty concerning the number of individuals to whom an offer can be made by a private company. I could count in large numbers of filing cabinets the letters I have seen from firms of lawyers which, when asked whether a particular offer can be made by a private company, go on to describe regulations for three pages, but end up with the position still uncertain.
	The purpose of this amendment is to clarify the position that an offer is not regarded as an offer to the public if it is made to fewer than 100 people by a private company, or under the other conditions set out in that amendment. When this amendment was discussed in Grand Committee, the Minister said:
	"I stress again to the noble Lord that there is no number which is allowed".—[Official Report 15/3/06; col. GC 478.]
	In another reply, he said:
	"We do not consider that private companies should be offering their shares to strangers".—[Official Report 15/3/06; col. GC 472.]
	I will let the noble Lord, Lord McKenzie, into a secret: it is entirely common practice in the City for private companies seeking seedcorn or development capital to do so from outside investors or private equity funds, without being obliged to register as public companies. Indeed, his answer would mean that an offer of shares to even two people unconnected to the company could be treated as an offer to the public—a view that goes beyond any understanding of either the existing law or what the law should be.
	The second argument of the noble Lord, Lord McKenzie, was that in cases of doubt a company could easily re-register as a public company. I can do no better than refer the noble Lord to the final report of the Company Law Review, which said:
	"We believe that private companies should not feel obliged to take the unnecessary precaution of registering as a public company, with the tighter regulation that this entails, simply because the existing provisions lack clarity".
	There are significant disadvantages for companies with a small number of shareholders in having to re-register as public companies. It certainly goes beyond current practice in the City and elsewhere.
	The final point I would like to make is that the Company Law Review went on to recommend the retention of the basic prohibition against private companies offering shares to the public, but with a power to prescribe detailed exceptions to the prohibition by statutory instrument. It referred to the definitions in the old Public Office of Securities Regulations. The second purpose of this amendment is to provide for an enabling power along those lines, which could then allow further consultation and consideration before regulations are brought in. I hope that, with the assistance of the Law Society and others, I have dealt with the reasons why the noble Lord, Lord McKenzie, rejected this amendment in Grand Committee and I hope he will reconsider. I beg to move.

Lord McKenzie of Luton: My Lords, this amendment seeks to add a further exemption to the public offer prohibition. It is also provides for a power to prescribe further exemptions. Clause 530 defines the meaning of an offer to the public and provides for a number of exemptions to the general prohibition on private companies' offers to the public. The principle behind these exemptions is that an offer is not considered to be a public offer where there is a sufficient connection or relationship between the company and the persons to whom the securities are being offered.
	Subsection (3) ensures that offers made to particular identified individuals are not treated as offers to the public, provided the shares are not offered to that person in order to be passed on to others. Nor will it be an offer to the public if the offer is otherwise a private concern of the person receiving it and the person making it. This exemption will be particularly relevant for private companies seeking seedcorn or development capital from outside investors. I should make it clear that we do not see these provisions as preventing that in any way. We are very much aware that it is an important means of raising finance.
	Subsection (4) provides an exemption for offers made to persons already connected with the company. This recognises the ways in which private companies may grow organically. Subsection (5) provides a similar exemption for offers for securities to be held under an employees' share scheme.
	I emphasise that it is the connection or relationship to the company that is the crucial issue. Within the requirements, the current definition has the flexibility to take into account the circumstances of the offer and the identity of the persons making and receiving it. So, for example, private companies may seek capital from an outside investor such as a business angel without necessarily breaching the prohibition. An offer may be permissible even if it is made to a very large number of people, perhaps hundreds of people, but we have no intention of preventing the many lawful ways in which private companies currently raise finance and attract investors.
	The amendment would allow the offer to be made to up to 99 persons. These might be individuals, companies or financial institutions. They might hold the securities for themselves or they might take up the offer on behalf of others. They might, for example, hold them as trustees for a group of people. So an offer to 99 persons might in fact involve a much larger group of people. We would have no objection to this if the matter could still properly be regarded as a private concern of those involved. But the amendment imposes no such requirement; it would undermine the whole principle that a private company should not offer its shares to strangers or to the unconnected general public. The prohibition, which is a key distinction between public and private companies, would be so easy to get round that it would become irrelevant.
	If companies wish to seek new investors from the general public, they should become a public company in order to do so. That would bring them within the regulation appropriate for a company with a generally wider shareholder base. The deregulation for private companies contained in the Bill makes it even more important that private companies do not make offers to the public. Deregulation for private companies is possible because the arrangements between the company and its members can be regarded as an essentially private matter. However, members of the public joining a company are more likely to need the increased protections that the additional regulation of public companies brings—for example, the right to an annual general meeting.
	In attempting to describe every circumstance in which an offer is or is not to be regarded as an offer to the public, we would risk either dramatically widening the exemption or inadvertently excluding something which currently would not be regarded as an offer to the public. We would risk imposing an unduly rigid or restrictive distinction, thereby making the exemptions more limited and the legislation more restrictive. Alternatively, as with this amendment, we would risk making the exemptions so wide that they would no longer act as an effective distinction between private and public companies. We feel it is important not to introduce substantive changes to such long-standing provisions that might create fresh uncertainties. It is not our intention to make the provisions in the clause more restrictive or significantly more relaxed than the equivalent provisions in the Companies Act 1985.
	We are seeking to preserve the current law on what is an offer to the public and not to prevent anything that is lawful now. There is flexibility in the current law which allows all the circumstances of an offer to the public to be taken into account, as well as the identities of the persons making and receiving it. In our view, the current law strikes the right balance. Given that we are not intending to make regulations on this issue, it would send out the wrong signals to include a power for the Secretary of State to make new exemptions.

Lord Razzall: My Lords, is the noble Lord saying that, under Clause 530(3)(a), any firm of stockbrokers can send out any number of offers of any number of shares to any number of individuals provided that there is no mechanism for those shares to be traded in any way and to be transferred from the individual who has received the offer? Does a private company with, for example, 120 shareholders have to re-register as a public company if it wants to create a market in its shares? Is that the noble Lord's understanding of the provision?

Lord McKenzie of Luton: My Lords, if the noble Lord asks whether I am saying that the stockbroker can act in that way to make any number of offers to a whole range of identified individuals, of itself I do not think that that satisfies the exemption. One would have to look at all the circumstances and all of the provisions in Clause 530. I hesitate to be drawn on specific examples because, as the noble Lord said in moving the amendment, these things can be complex. I do not want to mislead by putting something that is incorrect on the record. But, more specifically, it would not necessarily be a private concern. If it was a private concern, the answer might be yes. You would have to look at all the circumstances.

Lord Razzall: My Lords, I thank the Minister for his answer. This is obviously a detailed practical issue. I shall read what he has said in Hansard and perhaps have another conversation with him, to which I look forward. In the mean time, I have pleasure in begging leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 532 [Enforcement of prohibition: order for re-registration or winding up]:

Lord McKenzie of Luton: moved Amendments Nos. 405 to 407:
	Page 254, line 2, at beginning insert "This section applies"
	Page 254, line 7, leave out "the court shall make an order under this section"
	Page 254, line 8, leave out subsection (2).
	On Question, amendments agreed to.
	[Amendment No. 408 not moved.]

Lord McKenzie of Luton: moved Amendments Nos. 409 to 411:
	Page 254, line 11, leave out "for re-registration (rather than winding up)" and insert "requiring the company to re-register as a public company"
	Page 254, line 15, at end insert—
	"( ) If it does not make an order for re-registration, the court may make either or both of the following—
	(a) a remedial order (see section (Enforcement of prohibition: remedial orders), or
	(b) an order for the compulsory winding up of the company."
	After Clause 532, insert the following new clause—
	"ENFORCEMENT OF PROHIBITION: REMEDIAL ORDER
	(1) A "remedial order" is an order for the purpose of putting a person affected by anything done in contravention of section 529 (prohibition of public offers by private company) in the position he would have been in if it had not been done.
	(2) The following provisions are without prejudice to the generality of the power to make such an order.
	(3) Where a private company has—
	(a) allotted securities pursuant to an offer to the public, or
	(b) allotted or agreed to allot securities with a view to their being offered to the public,
	a remedial order may require any person knowingly concerned in the contravention of section 529 to offer to purchase any of those securities at such price and on such other terms as the court thinks fit.
	(4) A remedial order may be made—
	(a) against any person knowingly concerned in the contravention, whether or not an officer of the company;
	(b) notwithstanding anything in the company's constitution (which includes, for this purpose, the terms on which any securities of the company are allotted or held);
	(c) whether or not the holder of the securities subject to the order is the person to whom the company allotted or agreed to allot them.
	(5) Where a remedial order is made against the company itself, the court may provide for the reduction of the company's capital accordingly."
	On Question, amendments agreed to.
	Clause 538 [Exercise by directors of power to allot shares etc]:

Lord McKenzie of Luton: moved Amendment No. 412:
	Page 256, line 19, leave out subsection (4).
	On Question, amendment agreed to.
	Clause 540 [Power of directors to allot shares etc: authorisation by company]:

Lord Sainsbury of Turville: moved Amendment No. 413:
	Page 257, line 9, leave out "number" and insert "amount"

Lord Sainsbury of Turville: My Lords, Amendments Nos. 413 to 417 to Clause 540 are designed to deal with a point that was made during Grand Committee. This clause deals with the power of the directors to allot shares in public companies and private companies that will have more than one class of share after the proposed allotment. The concern is that, as currently drafted, an authority given under Clause 540, and any resolution renewing such an authority, must specify,
	"the maximum number of shares"
	that may be allotted pursuant to the authority.
	The noble Lord, Lord Razzall, pointed out in Grand Committee that that formulation of words does not take account of the fact that shares may be in different classes or of different denominations. The revised drafting is intended to address the noble Lord's concerns.
	As noble Lords will see from these amendments, we have returned to the formulation of words used in Section 80 of the 1985 Act—that is, the "maximum amount" of shares—on which Clause 540 is based. This formulation would cover an authority limited to a specific number of shares, but would also cover an authority given to directors to grant shares up to a given maximum nominal amount. The current provision provides this flexibility and we would similarly not wish the Bill to be prescriptive about the form of the limit on the authority to allot shares—hence our reverting to the terminology used in current Section 80 with which companies and their advisers are no doubt familiar and comfortable.
	Amendments Nos. 418 and 419 to Clause 541 are consequential on the amendments to Clause 540.
	I trust that that deals with the noble Lord's concerns. I am very grateful to him for raising this issue with us and to the Law Society for considering this point. I beg to move.

Lord Razzall: My Lords, it would be churlish of me not to thank the Minister for meeting the point that I made.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 414 to 417:
	Page 257, line 22, leave out "number" and insert "amount"
	Page 257, line 23, leave out "number" and insert "amount"
	Page 257, line 27, leave out "number" and insert "amount"
	Page 257, line 28, leave out "number" and insert "amount"
	On Question, amendments agreed to.
	Clause 541 [Public companies: allotment where issue not fully subscribed]:

Lord Sainsbury of Turville: moved Amendments Nos. 418 and 419:
	Page 258, line 1, leave out "number of"
	Page 258, line 3, leave out "number of"
	On Question, amendments agreed to.

Lord Hodgson of Astley Abbotts: moved Amendment No. 419A:
	Before Clause 552, insert the following new clause—
	"OFFERS TO SHAREHOLDERS TO BE ON PRE-EMPTIVE BASIS
	(1) Subject to the provisions of this section and the seven sections next following, a company proposing to allot equity securities (as defined in section (Interpretation of sections) (Offers to shareholders to be on pre-emptive basis) to (Saving for company's pre-emption procedure operative before 1982))—
	(a) shall not allot any of them on any terms to a person unless it has made an offer to each person who holds relevant shares or relevant employee shares to allot to him on the same or more favourable terms a proportion of those securities which is as nearly as practicable equal to the proportion in nominal value held by him of the aggregate of relevant shares and relevant employee shares, and
	(b) shall not allot any of those securities to a person unless the period during which any such offer may be accepted has expired or the company has received notice of the acceptance or refusal of every offer so made.
	(2) Subsection (3) below applies to any provision of a company's memorandum or articles which requires the company, when proposing to allot equity securities consisting of relevant shares of any particular class, not to allot those securities on any terms unless it has complied with the condition that it makes such an offer as is described in subsection (1) to each person who holds relevant shares or relevant employee shares of that class.
	(3) If in accordance with a provision to which this subsection applies—
	(a) a company makes an offer to allot securities to such a holder, and
	(b) he or anyone in whose favour he has renounced his right to their allotment accepts the offer,
	subsection (1) does not apply to the allotment of those securities, and the company may allot them accordingly; but this is without prejudice to the application of subsection (1) in any other case.
	(4) Subsection (1) does not apply to a particular allotment of equity securities if these are, or are to be, wholly or partly paid up otherwise than in cash; and securities which a company has offered to allot to a holder of relevant shares or relevant employee shares may be allotted to him, or anyone in whose favour he has renounced his right to their allotment, without contravening subsection (1)(b).
	(5) Subsection (1) does not apply to the allotment of securities which would, apart from a renunciation or assignment of the right to their allotment, be held under an employee's share scheme.
	(6) Where a company holds relevant shares as treasury shares—
	(a) for the purposes of subsections (1) and (2), the company is not a "person who holds relevant shares"; and
	(b) for the purposes of subsection (1), the shares held as treasury shares do not form part of "the aggregate of relevant shares and relevant employee shares"."

Lord Hodgson of Astley Abbotts: My Lords, in moving the amendment I shall speak also to Amendments Nos. 419B to 419G inclusive. These insert new clauses before Clause 552 in Part 18 of the Bill, which is concerned with the allotment of shares. At the same time, I shall speak to Amendments Nos. 439A to 439E, which are concerned with Part 19, on share capital, particularly Clauses 590, 591, 592 and 593, all of which are concerned with the transfer of securities.
	The amendments comprise two shots at one issue—we come back to the issue of consolidation, which we have discussed and battled over from the moment that the Bill was launched. We remain of the view, as stated at Second Reading, that the Bill should be as far as possible a comprehensive consolidation of company law, and that it defies belief that despite all the hard work that has gone into it from the Bill team, officials in the Minister's department, we would still be left with three other Companies Acts when this one leaves your Lordships' House.
	The first set of amendments to Part 18 aim to clarify the law regarding pre-emption and allotment. Our practitioner advisers have told us that this is an area that is frequently consulted and to have it spread out over the Bill and the other Companies Acts is an unhelpful and undesirable position. The second set, which concerns Part 20, is intended to ensure that the provisions relating to the transfer of securities are in one place; in particular, Section 207 of the Companies Act 1989, which inexplicably has been split between that Act and this Bill as currently drafted.
	We tabled these amendments in Committee and we were disappointed by the Minister's reply. I dare say that he is not going to accept the amendments tonight, but I hope that he will be able to give us some better news about the prospects and about the Government's plans to achieve further consolidation, either next week or through the passage in another place. Since it is the opening of the cricket season, I regard the amendment as a slow full toss bowled on the leg stump, which I hope he will dispatch immediately to the boundary. In that spirit I beg to move.

Lord Sainsbury of Turville: My Lords, as someone who hated cricket with a passion I will resist responding in similar terms. I hope that I can meet the noble Lord's points. These amendments would all largely have the effect of bringing up elements of the existing law unchanged into the new Bill. They would thus take a further step towards putting the new legislation on to a consolidated basis. We discussed this general issue in Grand Committee, and I said there that I recognised that there were strong arguments in favour of restating elements of the remaining 1985 Act provisions in the Bill.
	I can confirm that we are now looking at all of the remaining elements of the 1985 Act to see whether they could sensibly be brought into the Bill. There will be certain areas which do not lend themselves to this treatment; for example, areas of the law that have an application wider than companies, and which it would not make sense to bring up into a new Bill, which would in effect be a consolidated code of companies legislation. In certain other areas where there is a specific power to set out the law in regulations, and where we expect to make such regulations in the medium term, it may not make sense to consolidate the existing primary legislation into the new Bill now.
	These sorts of exceptions apart, I can assure the House that we are looking at what remains of the 1985 Act very much with an eye to bringing it into the new Bill wherever possible. I think the introduction of amendments giving effect to this approach, if it is to be managed in a coherent and co-ordinated way, may need to wait until the Bill is in another place. But I would certainly hope to be able to say more at Third Reading about the areas we are currently identifying as candidates for further consolidation, and I would certainly expect that the areas which are the subject of these amendments—pre-emption rights and share transfers—would be prime candidates for future consolidating amendments.
	In particular, I said in Grand Committee that we support the principle that provisions relating to the transfer of securities should be brought together in one place, and I confirm that the Government will bring forward their own consolidating amendments to Part 20. Unfortunately, there have been other significant issues to be dealt with by way of government amendment on Report and we have not had time to deal with the proposed amendments to Part 20 at this stage. We would also like to consult key City stakeholders on the draft amendments in view of the technical complexity of this part of the Bill.
	I would like to make one final point regarding consolidation. This is already a very substantial Bill and I suspect that there would be a general reluctance to see amendments introduced at any stage that greatly added to the requirement for parliamentary scrutiny during its passage. While I certainly do not seek in any way to constrain the debates that will be held here and in another place, I hope we all recognise that amendments that effectively did no more than restate existing provisions in the law without substantial change would not require the same level of scrutiny as those elements of the Bill that do make changes.
	I hope that what I have said has demonstrated how actively the Government are pursuing the principle that lies behind these amendments, and I hope on that basis that noble Lords and noble Baronesses will agree not to press their respective amendments for the moment. I will of course be happy to say more when we return at Third Reading.

Lord Hodgson of Astley Abbotts: My Lords, that was a handsome offer. The Minister may not like cricket, but he certainly hit the ball to the boundary very effectively. I accept his warning about the extent to which consolidation can be achieved and that parts of the Bill which do not directly concern companies may be left over. Steps to bring all the company-relevant legislation into one place would be helpful. Provided that the Minister is prepared to say on the Floor of the House that further consolidation does not entail substantial change in the law, we would be happy to facilitate the passage of such legislation—always provided that we do not hear from an outside body such as the Law Society that there is an issue here which has been waiting to be sorted out for 20 years. It might be worthwhile to address such an issue in this Bill, but, as far as wading through the detail of the legislation, and provided that the Minister can say that there is no plan to change the law, I am sure that we can facilitate the passage of the legislation through this House.

Lord Razzall: My Lords, from these Benches I echo the point made by the noble Lord, Lord Hodgson. The Minister has been kind enough to explain the Government's plans on consolidation to us and indeed to the Tory Opposition. We certainly do not intend to hold up the Bill's passage by arguing the finer points of consolidation, unless those who advise us say there is some noticeable howler in it—which I am sure the Minister would take on board. Apart from that, I concur with the words of the noble Lord, Lord Hodgson.

Lord Hodgson of Astley Abbotts: My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 419B to 419G not moved.]

Lord Sainsbury of Turville: moved Amendments Nos. 420 and 421:
	After Clause 552, insert the following new clause—
	"PROVISIONS NOT APPLICABLE TO SHARES TAKEN ON FORMATION
	The provisions of—
	(a) sections 538 to 551 of this Act, and
	(b) sections 89 to 96 of the Companies Act 1985 (c. 6) (pre-emption rights),
	have no application in relation to the taking of shares by the subscribers to the memorandum on the formation of the company."
	Before Clause 553, insert the following new clause—
	"COMPANIES HAVING A SHARE CAPITAL
	(1) References in the Companies Acts to a company having a share capital are to a company that has power under its constitution to issue shares.
	(2) References in the Companies Acts—
	(a) to "issued share capital" are to shares of a company that have been issued;
	(b) to "allotted share capital" are to shares of a company that have been allotted.
	(3) References in the Companies Acts to issued or allotted shares, or to issued or allotted share capital, include shares taken on the formation of the company by the subscribers to the company's memorandum."
	On Question, amendments agreed to.
	Clause 554 [Alteration of share capital of limited company]:

Lord Sainsbury of Turville: moved Amendment No. 422:
	Page 264, line 27, at end insert—
	"( ) section (Enforcement of prohibition: remedial orders) of this Act (remedial order in case of breach of prohibition of public offers by private company),"
	On Question, amendment agreed to.
	Clause 566 [Circumstances in which companies may reduce share capital]:

Lord Sainsbury of Turville: moved Amendment No. 423:
	Page 270, line 36, leave out from beginning to end of line 7 on page 271 and insert—
	"(1) A limited company having a share capital may reduce its share capital—
	(a) in the case of a private company limited by shares, by special resolution supported by a solvency statement in accordance with section 135A;
	(b) in any case, by special resolution confirmed by the court in accordance with sections 136 to 139.
	(1A) A company may not reduce its capital under subsection (1)(a) if as a result of the reduction there would no longer be any member of the company holding shares other than redeemable shares.
	(1B) Subject to that, a company may reduce its share capital under this section in any way."."

Lord Sainsbury of Turville: My Lords, in Grand Committee the noble Lord, Lord Hodgson, tabled an amendment to Clause 566 which if accepted would have completely removed the proviso presently in subsection (1B) of this clause that a company can reduce its share capital in any way under Clause 566 providing that,
	"as a result of the reduction at least one member of the company would hold shares other than redeemable shares or shares held as treasury shares".
	We were unable to accept that amendment in Grand Committee as it would have enabled private companies that wished to use the new solvency statement procedure to use that procedure to reduce their share capital to zero. That is undesirable.
	In Committee the noble Lord, Lord Hodgson, explained that there may be circumstances where a company would want to reduce its share capital to zero; for example where the company is the target of a takeover bid and wants to cancel all of its own shares and issue new shares in the acquiring company. The noble Lord also explained that it is relatively common practice for a reduction of capital which is approved by the court to involve a reduction of the shares' capital to zero. We understand, however, that this is only on terms that the court can see that very shortly after the reduction taking effect, either a reserve will be capitalised in favour of someone who becomes the member or one or more shares are subscribed conditional upon the reduction taking effect. Thus the concern which prompted us to incorporate the provision—namely, a company being left without any issued shares—is not one that arises in the context of reductions confirmed by the court.
	Having discussed this matter with the Law Society, we agree that subsection (1B) of Clause 566 does not achieve the desired effect. In particular, we do not intend either to fetter the powers of court or to reduce the flexibility that is currently afforded to companies limited by shares which apply to court to reduce their share capital under Section 135 of the 1985 Act, which is amended by Clause 566. I am grateful to both the noble Lord and the Law Society for raising this point.
	Amendment No. 423 is designed to address the noble Lord's concerns. It limits the qualification that is presently in subsection (1B) of Clause 566 to private companies that wish to use the new solvency statement procedure to effect a reduction of capital. Amendment No. 424 provides a different drafting solution to the perceived problem, but, with the exception of what I am about to say about the reference to treasury shares in subsection (1B), the drafting solution which we have proposed in Amendment No. 423 achieves the same effect as this amendment. I therefore trust that noble Lords will agree to the amendment.
	The deletion of the reference to treasury shares in subsection (1B) has been proposed because a private company may not hold its own shares in treasury, and since the redrafted proviso now applies only to private companies seeking to reduce their share capital under the new solvency procedure statement—whereas previously the proviso applied to both public and private companies—it is no longer necessary to refer to treasury shares. I beg to move.

Lord Sharman: My Lords, I am grateful to the Minister for responding to the amendments, which were tabled by the noble Lord, Lord Hodgson. In addressing this issue I shall speak also to Amendment No. 424, which is in my name. I simply want to say that the noble Lord's Amendment No. 423 substantially addresses the issue that we have raised and I am grateful for that.

Lord Hodgson of Astley Abbotts: My Lords, I too am grateful to the Minister for responding to a quite technical matter that has concerned a number of practitioners. Without wishing to look a gift horse in the mouth, the only issue I would raise is that it seems a shame that we have 12 lines of drafting where two lines, in Amendment No. 424, seem to achieve the same effect. No doubt the whizzes of the parliamentary draftsmen will make it clear that our drafting, although short, is not as perfect as they achieve in 12 lines.

On Question, amendment agreed to.
	[Amendment No. 424 not moved.]
	[Amendment No. 425 had been withdrawn from the Marshalled List.]
	Clause 567 [Reduction of capital supported by solvency statement]:

Lord Sainsbury of Turville: moved Amendment No. 426:
	Page 272, line 15, after "statement" insert "must be in the prescribed form and"

Lord Sainsbury of Turville: My Lords, this is a minor drafting amendment to clarify that the solvency statement required in connection with a reduction of capital under Clause 567 must be in the prescribed form. I trust that noble Lords will have no objection to it. In this context, "prescribed" means prescribed by the Secretary of State by statutory instrument under Section 744 of the 1985 Act. I beg to move.

On Question, amendment agreed to.
	Clause 571 [Circumstances in which financial assistance is not prohibited]:

Lord Sharman: moved Amendment No. 427:
	Page 276, line 26, leave out "principal purpose" and insert "predominant reason"

Lord Sharman: My Lords, in moving Amendment No. 427, I shall speak also to Amendment No. 428, which is grouped with it. We return to the issue of a definition, and we are advised in this matter by the Law Society.
	Amendments Nos. 427 and 428 would replace the words "principal purpose" with the words "predominant reason", and their purpose is to overcome a problem in the interpretation of the expression "principal purpose". This matter was considered by the House of Lords in Brady v Brady 1988, in which the expression "principal purpose" was construed so narrowly that lawyers are reluctant ever to rely on this exemption. The Law Society continues to press for the amendments put forward in Grand Committee to substitute "predominant reason" for "principal purpose" in lines 26 and 34 of Clause 571. In the judgment in Brady v Brady, Lord Oliver said that,
	"it is important to distinguish between a purpose and the reason why a purpose is formed".
	He then went on at length to explain the distinction. I shall not trouble your Lordships with it as I am sure that the noble Lords, Lord McKenzie and Lord Sainsbury, are familiar with the judgment.
	A consequence of this narrow construction is that transactions and arrangements which may well be commercially justifiable are precluded by the financial assistance provisions or, in the case of private companies, can be carried out only after going through the expense of what is commonly known as the "whitewash" procedure.
	The Company Law Review accepted the desirability of reformulating the principal purpose exemption in terms of "predominant reason". We considered that such a reformulation would be in accordance with Article 23 of the second directive, which prohibits a company from entering into certain transactions with a view to the acquisition of its shares, as it seems apparent that the formulation of Article 23 means that it is necessary to look to the result that the company has in view by giving the assistance rather than the reason for entering into the transaction constituting the assistance. The directive prohibits only financial assistance given with a view to the acquisition, and, provided the company has some other tangible and overriding end in view in giving the assistance, the assistance should not be prohibited. I beg to move.

Lord Sainsbury of Turville: My Lords, these amendments relate to the existing "principal purpose" exception to the general prohibition on the giving of financial assistance by a public company contained in Section 153 of the 1985 Act. The exception is retained by Clause 570 of the Bill.
	The exception provides that such assistance is not prohibited if the "principal purpose" of the assistance is not to give it for the acquisition of shares or where the assistance is incidental to some other larger purpose of the company. In those circumstances, the assistance is permitted and no offence is committed by the company or its officers.
	The concern that has prompted these amendments, and various others tabled in Grand Committee, is that the courts, and in particular this House in its judicial capacity, have interpreted the words "principal purpose" too narrowly. We have some sympathy with that view, but first I shall explain why we think that this amendment is not the answer. On that, I can only reiterate what I said in Grand Committee: namely, that the Government are not convinced that the suggested wording means anything other than what is intended by the current wording. We have discussed this issue at some length with the Law Society—we are most grateful for its input—but have not been persuaded that any transactions which companies might wish to enter into, and which would be compatible with the second directive, fall outside the current test but within the suggested reformulated exception.
	If we are to take this matter forward, a clear indication is required of the intended effect of the suggested words rather than the substitution of one pair of words by another pair, which, on the face of it, mean the same. In other words, we cannot have a rational debate about this subject unless we can agree about the difference between "principal purpose" and "predominant reason". Until we can agree that, we cannot debate whether things that we all might want to do would be allowed by the change.
	As I commented in Grand Committee, this may point to a reworking of the provision so as to have the intended effect. Such a new provision could refer to concepts along the current lines or may be framed on an entirely different basis so long as it remained consistent with the implementation of Article 23 of the second company directive. In this connection I would remind noble Lords that the Government are proposing to take a power to make, by secondary legislation, provisions relating to capital maintenance and we believe that such a reworking would be more suitably addressed by use of that power than by piecemeal amendment to the existing sections.

Lord Sharman: My Lords, I am grateful to the Minister for his full explanation of this matter. I am content with it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 428 not moved.]
	Clause 576 [Power of private companies to redeem or purchase own shares out of capital]:

Lord Sainsbury of Turville: moved Amendment No. 429:
	Leave out Clause 576.

Lord Sainsbury of Turville: My Lords, Amendments Nos. 429 to 431 in this group are required to achieve consistency with the approach taken elsewhere in the Bill with regard to the replacement of the current requirement for a statutory declaration with a requirement for a simple statement by the directors. They replace various references, currently in Sections 172 to 179 of the 1985 Act—which relate to the purchase or redemption of shares by a private company out of capital—to "statutory declaration" or "declaration" with references to "directors' statement" or "statement".
	Amendment No. 432 is consequential on Amendment No. 429. It simply restates existing subsection (3) of Clause 576 which deals with the requirements as to notice where a company makes a payment out of capital in respect of a purchase or redemption of its own shares.
	Amendment No. 488 brings two offences which are still extant in the 1985 Act and which relate to a purchase or redemption of own shares out of capital into Schedule 4 to the Bill. These offences are currently set out in Schedule 24 to the 1985 Act—which is to be repealed. These are minor amendments which improve the drafting of the Bill and I trust that noble Lords will have no objections to them.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 430 to 432:
	After Clause 576, insert the following new clause—
	"POWER OF PRIVATE COMPANIES TO REDEEM OR PURCHASE OWN SHARES OUT OF CAPITAL
	In section 171 of the Companies Act 1985 (c. 6) (power of private companies to redeem or purchase own shares out of capital), for subsection (1) substitute—
	"(1) A private limited company may in accordance with this section, but subject to any restriction or prohibition in the company's articles, make a payment in respect of the redemption or purchase of its own shares otherwise than out of distributable profits or the proceeds of a fresh issue of shares."."
	After Clause 576, insert the following new clause—
	"CONDITIONS FOR REDEMPTION OR PURCHASE OF OWN SHARES OUT OF CAPITAL
	(1) Section 173 of the Companies Act 1985 (c. 6) (conditions for payment out of capital for redemption or purchase by a private company of its own shares) is amended as follows.
	(2) In subsection (3) (under which the directors are required to make a statutory declaration as to the company's financial position) for "a statutory declaration" substitute "a statement".
	(3) For subsection (4) (directors' opinion as to solvency: liabilities to be taken into account) substitute—
	"(4) In forming their opinion for the purposes of subsection (3)(a), the directors must take into account all of the company's liabilities (including any contingent or prospective liabilities).".
	(4) In subsection (5) (further requirements)—
	(a) in the opening words, for "statutory declaration" substitute "statement";
	(b) in paragraphs (b) and (c) for "declaration" substitute "statement".
	(5) For subsection (6) (offence of making declaration without reasonable grounds) substitute—
	"(6) If the directors make a statement under this section without having reasonable grounds for the opinion expressed in it, an offence is committed by every director who is in default.
	(7) A person guilty of an offence under subsection (6) is liable—
	(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);
	(b) on summary conviction—
	(i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);
	(ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both).".
	(6) The following amendments are consequential on that in subsection (2) above—
	(a) in section 172(6) of the Companies Act 1985 (c. 6) for "statutory declaration of the directors" substitute "directors' statement";
	(b) in section 174 of that Act—
	(i) in subsection (1), for "statutory declaration" substitute "statement", and
	(ii) in subsection (4), for "statutory declaration" substitute "directors' statement";
	(c) in section 175 of that Act—
	(i) in subsections (1)(c) and (5), for "statutory declaration of the directors" substitute "directors' statement";
	(ii) in subsection (6) for "statutory declaration", substitute "directors' statement", and
	(iii) in subsection (8), for "declaration" (twice) substitute "statement";
	(d) in section 179 of that Act—
	(i) in subsection (1)(d), for "statutory declaration of the directors'" substitute "directors' statement", and
	(ii) in subsection (1)(e), for "declaration" substitute "statement"."
	After Clause 576, insert the following new clause—
	"NOTICE TO REGISTRAR OF PAYMENT OUT OF CAPITAL FOR REDEMPTION OR PURCHASE OF OWN SHARES
	After section 177 of the Companies Act 1985 (c. 6) insert—
	"177A NOTICE TO REGISTRAR OF PAYMENT OUT OF CAPITAL FOR REDEMPTION OR PURCHASE OF OWN SHARES
	(1) A private limited company that makes a payment out of capital for the redemption or purchase of its own shares must, within 15 days after making the payment, give notice to the registrar.
	(2) The notice must be accompanied by a statement of capital.
	(3) The statement of capital must state with respect to the company's share capital immediately following the payment out of capital—
	(a) the total number of shares of the company,
	(b) the aggregate nominal value of those shares,
	(c) for each class of shares—
	(i) prescribed particulars of the rights attached to the shares,
	(ii) the total number of shares of that class, and
	(iii) the aggregate nominal value of shares of that class, and
	(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
	(4) If default is made in complying with this section, an offence is committed by—
	(a) the company, and
	(b) every officer of the company who is in default.
	(5) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale."."
	On Question, amendments agreed to.
	Clause 583 [Redenomination of share capital]:

Lord Sainsbury of Turville: moved Amendment No. 433:
	Page 287, line 19, leave out "15" and insert "28"

Lord Sainsbury of Turville: My Lords, this amendment is intended to address the concerns expressed by the noble Lords, Lord Razzall and Lord Hodgson, in Grand Committee, regarding subsection (6) of Clause 583. The concern with the current drafting of subsection (6) is that it does not give companies a sufficiently long period of time to comply with any conditions that may be attached to a resolution to redenominate a company's share capital.
	Amendment No. 433 extends the period during which a company may comply with the terms of such a conditional resolution from 15 days to 28 days. This does not go as far as the respective amendments proposed by the noble Lords in Grand Committee—the noble Lords' amendments sought an extension from 15 days to three months and 12 months respectively—but having looked at the issue again we think this is as far as we can go. In particular, we still regard it as important that there is reasonable proximity between the date of the redenomination taking effect and the relevant rate of exchange adopted for the purpose of such redenomination of share capital. In short we think that the respective periods suggested by the noble Lords were simply too long.
	I am however very grateful to the noble Lords for raising this issue and I trust this amendment goes some way towards allaying their concerns. I beg to move.

Lord Razzall: My Lords, I am grateful to the Minister—I speak for the Liberal Democrats—for taking on board at least some of the points that we made. As he rightly says, we tried to go a little further; but I am sure that this is a happy compromise.

On Question, amendment agreed to.
	Clause 584 [Calculation of new nominal values]:

Lord Sainsbury of Turville: moved Amendment No. 434:
	Page 287, leave out lines 32 to 34 and insert—
	"Divide the resulting figure by the number of shares in the class."

Lord Sainsbury of Turville: My Lords, in Grand Committee the noble Lord, Lord Hodgson, expressed concern that step three of Clause 584 seemed to allow an inadvertent reduction of capital. Having looked at this again we agree that there are potential difficulties with this step of the process for calculating the new nominal value of the shares that have been redenominated under Clause 583.
	We think that this step can be omitted from the prescribed method for calculating the new nominal values of the shares without detracting from the redenomination process as a whole—and this is what Amendment No. 343 does. I am grateful to the noble Lord for drawing this to our attention and trust that the amendment addresses his concerns.

On Question, amendment agreed to.

Baroness Goudie: moved Amendment No. 435:
	After Clause 589, insert the following new clause—
	"PART 19A LIMITS OF PRIVATE COMPANY'S POWER OF DISTRIBUTION
	CERTAIN DISTRIBUTIONS PROHIBITED
	In this Part, "distribution" means every description of distribution of a company's assets to its members, whether in cash or otherwise, except distribution by way of—
	(a) an issue of shares as fully or partly paid bonus shares,
	(b) the redemption or purchase of any of the company's own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with Chapter VII of Part V,
	(c) the reduction of share capital by extinguishing or reducing the liability of any of the members on any of the company's shares in respect of share capital not paid up, or by paying off paid up share capital, and
	(d) a distribution of assets to members of the company on its winding up."

Baroness Goudie: My Lords, in moving Amendment No. 435, I shall speak also to Amendments Nos. 436 to 439. They all relate to the new Part 19A that I would like to add to the Bill.
	This new clause meets in considerable part the urgent need to reform the rules on dividends. The present rules in Part VIII of the Companies Act 1985 are now in disrepute because, first, the link between distributions and accounts has created considerable practical problems leading to more than 100 pages of additional guidance from the Institute of Chartered Accountants in England and Wales and the Institute of Accountants of Scotland. They are also in dispute because, secondly, private companies that are subsidiaries of public companies are keen to move to using solely international financial reporting standards (IFRS). They are being forced to keep two sets of accounting records—for example, the IFRS one and the existing UK accounting standards one—because the link between dividends and accounts is not catered for under the IFRS. Dividend blocks would be created, leading to a shortage of dividends to the public parent company, leading inevitably to restrictions on the parent's ability to pay dividends to shareholders, which of course include many pension funds.
	On the distribution of assets, the amendment removes a piece of the 1980 UK gold-plating EC second company law directive. That directive applies only to public companies. The UK chose to apply its distributions' provision to both public and private companies. Public groups have been forced to use IFRS from 2005. UK accounting is likely to converge with IFRS by 2009. The UK cannot wait for an EC solution to emerge. Ministers will see how urgent this will become.
	Amendment No. 436 results in a consistent regime applying to private company distributions—as that proposed for private companies' reduction of share capital set out in Part 19 of the Bill. The focus is on insolvency. Paragraph (b) ensures that directors consider their general fiduciary duties. This is the "solvency" test. Amendment No. 437 preserves the current penalty in the 1985 Act.
	The further clauses seek to exempt private companies from existing rules. Special companies—for example, investment and insurance companies—will stay within the existing regime as of this time. The other provisions are the equivalent of Section 281 of the Companies Act 1985, amended as appropriate to fit the proposed new regime. I think that my final amendments speak for themselves. I hope that Ministers will consider these and come back at Third Reading, if they do not agree this evening. I beg to move.

Baroness Noakes: My Lords, I will not weary the House with a dissertation on the impact of IFRS. Even were I fully competent to do that, it is an incredibly difficult area. We support what the noble Baroness, Lady Goudie, seeks to do with these amendments since that area really needs some urgent legal attention.

Lord Sharman: My Lords, I am extremely grateful that the noble Baroness, Lady Noakes, did not give us the benefit of her wisdom on IFRS or we should still be here tomorrow. However, I agree with the noble Baronesses, Lady Goudie and Lady Noakes, that this area desperately needs attention. Incidentally, it has a much broader application than being for public companies alone but, as the noble Baroness, Lady Goudie, has already remarked, this forum cannot deal with the broader issue on public companies.
	If one looks carefully at what is happening in the public company arena, the impact of IFRS is that a great many companies and groups are being forced to engage in reconstructions that I regard as completely artificial. Their purpose is to get the reserves in the right place to be able to make the distribution, so a solvency-based test, which has worked well in other parts of the world, is an eminently good solution.

Lord Sainsbury of Turville: My Lords, as we discussed in Committee, these amendments concern the distribution of profits and the payment of dividends. I am grateful to my noble friend Lady Goudie for raising this important issue. We are very aware of concerns about the current rules that link the payment of dividends to realised profits. These have become more acute for public companies because of the application of new international accounting standards to the treatment of some elements of income and expenditure, and the consequent effects on a company's accounts.
	The proposed Part 19A would, of course, apply only to private companies, not to public ones. However, it would have relevance for public companies as it would affect their private company subsidiaries. As noble Lords may be aware, the EC's second company directive constrains what we can provide in respect of public companies. The Commission has undertaken to review distributions in the context of wider capital maintenance issues, and is beginning the process with a study of the issues. The likely outcome of that work is not yet clear.
	In the mean time, companies' experience of the International Financial Reporting Standards is in its early stages, the first full year of IFRS accounts having just finished, and views on the issues that cause most difficulty in presenting accounts are still evolving. We have continued to keep in contact with representative bodies and companies that have made representations to us in the course of the Bill's passage. They are gathering and assessing data from the last year, which we will discuss further with them when more information is available. In that respect, the work that the accounting institutes, among others, have done in promoting awareness of the issues with the International Accounting Standards Board has been successful. Recent indications are that the board will, at least, look at ways of easing difficulties in determining the cost of a subsidiary on transition to IFRS.
	We believe that we should assess the need for any change in the light of all information available to us, including the new information that interested parties are collecting. We do not believe that the proposed new clause has the right way forward. The proposed solvency test would only require directors to consider debts falling due in the next year, thus allowing the company to pay a dividend even though its long-term liabilities might exceed its assets. For the longer term, there would be no clear rules—none in the Bill, certainly—to prevent the dissipation of assets for long-term obligations such as pensions.
	While the amendments' approach is thus not the right one, we agree that it would indeed be desirable to have flexibility to tackle the issue. Therefore, in the light of our decision to drop the reform power, we will be bringing forward a power in relation to capital maintenance matters. While we agree that this area requires attention, that needs to be done in a slightly broader context than the one here. These amendments do not meet the issue without having some other undesirable side-effects. I hope that, in this light, the noble Baroness will not press her amendment.

Baroness Goudie: My Lords, in the light of my noble friend's reply, I am happy not to press my amendments and look forward to Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 436 to 439 not moved.]
	Clause 590 [Transfer of securities: power to make regulations]:
	[Amendment No. 439A not moved.]
	Clause 591 [Transfer of securities: extension of powers]:
	[Amendment No. 439B not moved.]
	Clause 592 [Transfer of securities: order-making power]:
	[Amendment No. 439C not moved.]
	Clause 593 [Transfer of securities: supplementary provisions]:
	[Amendments Nos. 439D and 439E not moved.]
	Clause 595 [Shares to which this Part applies]:

Lord McKenzie of Luton: moved Amendment No. 440:
	Page 292, line 4, leave out "(excluding" and insert "(including"

Lord McKenzie of Luton: My Lords, I shall speak also to Amendments Nos. 441 and 442. Amendment No. 440 is designed to address a problem raised in Grand Committee by the noble Lord, Lord Hodgson, on behalf of the Law Society. References in the clause to a company's shares currently exclude any shares held as Treasury shares. The effect is to prevent companies being able to discover who had an interest in any of the past three years in those of their shares which they now hold as Treasury shares. The amendment would remove that unnecessary exemption of treasury shares from Clause 595.
	Amendments Nos. 441 and 442 address further points raised by the noble Lord, Lord Hodgson. He tabled an amendment in Grand Committee which sought to clarify the time limit in respect of the requirements of Clause 605(3). Amendments Nos. 441 and 442 achieve that clarification by moving the time limit to subsection (2), so that it applies to the basic entry of information on the register of interests disclosed, which must now be made within three days of receipt.
	Before we leave Part 21, I take this opportunity to advise noble Lords that we undertake to table at Third Reading further amendments to Clauses 859 to 861, which currently appear in Part 33 and which implement the transparency directive in UK law. I am happy to expand on that if noble Lords press me, but I take this opportunity to put them on notice. In the mean time, I beg to move.

On Question, amendment agreed to.
	Clause 605 [Register of interests disclosed]:

Lord McKenzie of Luton: moved Amendments Nos. 441 and 442:
	Page 296, line 13, leave out from beginning to "enter" and insert "A company which receives any such information must, within three days of the receipt,"
	Page 296, line 21, leave out subsection (4).
	On Question, amendments agreed to.

Lord McKenzie of Luton: My Lords, I beg to move that further consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.

NHS: Primary Care Trusts and Ambulance Trusts

Lord Warner: My Lords, with the leave of the House, I shall now repeat a Statement made in another place.
	"With permission, Mr Speaker, and in the unavoidable absence of my right honourable friend, I should like to make a Statement on primary care trusts and NHS ambulance trusts. Detailed information for each area has, for the convenience of honourable Members, been placed on the Board since 1 pm.
	"In my right honourable friend the Secretary of State's Written Statement of 18 October 2005, she explained that strategic health authorities had been invited to submit proposals to the Department of Health on how to streamline SHAs and strengthen primary care trusts. Four clear criteria underpinned this exercise: the need to improve health and reduce inequalities; to strengthen the PCTs' commissioning function; to improve co-ordination with social services through greater coterminosity between PCT and local authority boundaries; and to deliver at least a 15 per cent reduction in management and administrative costs.
	"In the intervening period, strategic health authorities have consulted local people, staff and clinicians, partners in local government and a range of other local bodies on the proposals for SHAs, PCTs and ambulance trusts. Many right honourable and honourable Members on both sides of the House have offered their views. I am very grateful to them.
	"After local consultations, SHAs submitted their reports and recommendations to the department. The external panel, established to advise Ministers on the proposals, has since met to consider each proposal for PCTs and SHAs in detail. After its advice, we announced on 12 April that the numbers of SHAs would reduce from 28 to 10.
	"Ministers have now considered the recommendations and the panel's advice on PCTs. I can inform the House that the number of PCTs will fall from 303 to 152, with the new organisations established on 1 October 2006. The population covered by each PCT will rise from an average of around 165,000 at present to an average of just below 330,000. Just over 70 per cent of the new PCTs will be coterminous with the boundaries of local authorities with social services responsibilities. This compares with about 44 per cent of PCTs that are currently coterminous.
	"In some areas concerns have been expressed that larger PCTs could lose a locality focus and divert resources away from deprived areas, or that smaller PCTs could lack commissioning power. We acknowledge the concerns and have sought to strike a careful balance between these conflicting demands.
	"In response, we are proposing that four general conditions be applied: one, that all PCTs must retain and build on current partnership arrangements; two, that a strong locality focus must be retained, and where necessary that locality structures should be put in place; three, that all PCTs must deliver their share of the 15 per cent management cost savings, strengthen commissioning and ensure robust management of financial balance and risk; and, four, that the new PCTs and SHAs should consider how any further conditions, on issues that arose during the consultation, could be applied.
	"In some areas the new proposals do differ from those suggested by the SHA and the external panel. In these circumstances, having taken into account all the evidence and, wherever possible, sought local consensus, we have judged that the alternatives could better satisfy the Commissioning a Patient-led NHS criteria and have the best possible chance of success.
	"On PCTs as providers of services, let me restate the Secretary of State's clear commitment to the House on 25 October 2005:
	'district nurses, health visitors and other staff who deliver clinical services . . . will continue to be employed by the PCT unless and until it decides otherwise'.—[Official Report, Commons, 25/10/05; col. 152.]
	"Our aim in making these changes is to benefit both patients and taxpayers. Fewer, more strategic PCTs will be better placed to ensure effective commissioning of services for patients and to support the development of practice-based commissioning among GPs and other primary care staff. Patients will receive the right care and treatment, in the right place, at the right time.
	"The taxpayer will see the release of £250 million savings annually—by merging back office functions and reducing administrative costs—for reinvestment in frontline services from 2008-09. This could pay for, for example, roughly 50,000 heart operations or major improvements in services for people with long-term conditions, especially older people. The changes will also build stronger partnerships between the NHS and local government.
	"The reconfiguration of PCTs is the first stage in strengthening their commissioning function. The next stage is a development programme for all PCTs which will ensure that they are strong, confident organisations, fit for driving forward the NHS reforms that we are implementing.
	"Let me now turn to ambulance trust reorganisation. In June 2005, the Government accepted the recommendations set out in the review by Peter Bradley, our national ambulance adviser, called Taking Healthcare to the Patient: Transforming NHS Ambulance Services. The report set out a vision for ambulance services. In future, they will provide more care in the home and more treatment at the scene, give better advice to patients over the telephone and ensure faster response times to save more lives.
	"The review made it clear that, in order to ensure ambulance trusts have the right strategic capacity, infrastructure and staff to deliver these improvements to patient care, there should be fewer, larger ambulance trusts in future. These changes will enable standards within the new trusts to be levelled up to those of the best.
	"In her Written Statement of 14 December 2005, my right honourable friend set out our intention to consult and to ensure that the benefits outlined in the ambulance review could be fully realised. Following this consultation, the Secretary of State has now decided that, from 1 July 2006, most of the existing 29 NHS ambulance trusts will merge into 12, with separate management arrangements for the Isle of Wight. For now, Staffordshire ambulance service will remain a separate trust, working in partnership with the new West Midlands ambulance service, but eventually merging later.
	"Feedback for most areas was supportive of our proposals. However, in order to address public concern that local responsiveness and flexibility could be lost through having larger trusts, we have decided to address this by requiring ambulance trusts to ensure that their services are meeting the needs of all localities and populations within their boundaries.
	"These changes should mean more investment in frontline services as trusts identify savings in backroom functions; improved patient care by providing an opportunity to raise the standards of services provided by all trusts to the level of the best; better emergency planning with greater capacity and capability to respond to major incidents of all kinds; and more integrated services and better career opportunities for staff.
	"Changes of this kind are inevitably difficult. We have not sought to impose a single blueprint on the NHS, but instead have listened carefully to representations from all honourable Members, local communities and organisations. Wherever possible, we have responded positively to them. They have one aim above all—to deliver better healthcare to patients".
	My Lords, that concludes the statement.

Earl Howe: My Lords, the House will be grateful to the noble Lord for repeating the Statement.
	In 2001, in the document called Shifting the Balance of Power, the Government announced that 302 PCTs would replace the existing health authorities and that the nine regional offices of the NHS Executive would be abolished in favour of 28 strategic health authorities. The announcement today effectively returns the NHS to a very similar organisational configuration to the one which the Government abolished only three years ago. That fact alone is enough to call the judgment of Ministers and officials into question. The Minister mentions cost savings arising from these mergers, but we all know that reorganisation itself carries a very considerable cost. Can the Minister say what the cost is likely to be in redundancy pay? Is the figure I have read of £320 million an accurate estimate?
	There is a further issue here. These very far-reaching changes to the structure of PCTs are being made without real clarity on what their functions are supposed to be. Why was it decided to retain the provider role and functions of PCTs when it was initially said by the Government that there was such a compelling case for removing those functions? What is the Government's endgame in view? Will PCTs be encouraged to divest themselves of their provider functions? If it is to be down to local decision-making, what criteria should govern such decisions as practice-based commissioning develops? Finally on PCTs, I would like to pick the Minister up on two particular matters that he mentioned. He spoke of the need to retain a strong locality focus. How does he propose to do that with these larger structures? And what added benefits does the Minister see for the commissioning of services? As he will remember, commissioning is an issue that we have debated in this House in recent months.
	Moving to ambulance trusts, I welcome and am relieved by the decision on Staffordshire ambulance service, although its future is still less than clear. But it is not self-evident, despite what the Minister said, that bigger is better in this area. Some of the much smaller trusts which struggle with poorer response times will no doubt welcome a merger and derive a benefit from it, but there is a real issue over whether the creation of ambulance trusts over sometimes very large areas like the greater part of East Anglia will do anything at all for responsiveness and flexibility.
	Some interesting comments have been published recently on this theme. According to one unnamed chair of an NHS ambulance trust, the former chief executive of the NHS, Sir Nigel Crisp, told him that the changes were driven by the manifesto pledge of the Government to find £250 million of savings in NHS management and administration costs. The chair said that the changes had,
	"not been thought through operationally".
	The chief executive of Staffordshire Ambulance Trust, Roger Thayne, has condemned the proposed mergers. He has said that there is,
	"no evidence that larger ambulance services are anything [other] than more expensive and do not improve performance and save more lives . . . Services serving a population of more than 2 million cost more and save less lives. The worst thing is we don't know why they're doing this—but I do know it won't save more lives".
	That was from an article in the Health Service Journal of 22 September last year. Those comments are entirely apposite. It seems to many that what the Government are now doing is primarily cost driven, not outcome driven. Can the Minister say in what respects the reorganisation of ambulance trusts is designed to integrate ambulance services with the other emergency services? How can such integration be possible when in many instances different services are using different communication and co-ordination systems?
	If you talk to those who work in the NHS, you will hear a number of comments at the moment, but one is heard perhaps more than others about the activities of Government. It is: when will they stop moving the deckchairs and let us get on with it? I suggest that it behoves Ministers to ask themselves that question now.

Baroness Barker: My Lords, I too thank the Minister for repeating the Statement made in another place. Since this Government came to power there have been seven reorganisations of the National Health Service. The announcement today marks the eighth and ninth. The NHS could have wanted nothing less.
	As the noble Earl said, four years ago regional health authorities were abolished. Today's announcement begs the question of whether the Government were right then to abolish health authorities or whether they are right now to recreate them in a new form. They must have been right at one point and wrong at another. Would the Minister tell us which?
	Secondly, today's Statement made much of the anticipated savings of £250 million. Would the noble Lord tell us the evidence for that figure? In January the Health Select Committee, writing on the subject of PCT reorganisation, said that at best it could estimate savings of between £60 million to £100 million. How was that figure of £250 million arrived at and will it be recurrent? Furthermore, can the Minister tell us the anticipated number of redundancies of managers and how will that interplay with the number of frontline staff currently being shed by trusts?
	The Minister said in the Statement that there would be an achievement of 70 per cent coterminosity with social services. On behalf of my colleagues, I welcome the fact that the Government have in some cases listened and changed their proposals, particularly on coterminosity in some parts of the country. Given that coterminosity of PCTs and social services remains the same in London, and they represent 32 out of 152 trusts, there must be a substantial part of the rest of the country where there is no coterminosity. Given that the numbers of older people—particularly heavy users of ambulance trust and PCT services—live in areas that are not coterminous and given that at the same time social services are having to deliver against a background of 15 per cent cuts and savings, can the Minister say what the Statement means for the future integration of health and social care services?
	I too wish to make some points on ambulance services. I echo the noble Earl's feeling that bigger is not necessarily fitter for function, but given that ambulance services are going to be reorganised at the same time as the reorganisation of police forces, can the Minister say what the implications of that would be for co-ordination of emergency work? Furthermore, if ambulance trusts are to cover much wider areas, what is going to happen to people in rural areas? How will this reorganisation ensure that there is equity between those who live in rural areas and those who live in larger urban areas, whose demands on the ambulance service can be particularly high—particularly high at key points such as evenings and weekends?
	This restructuring is to be implemented by October this year. It is being introduced at a time when practice-based commissioning is being rolled out. It is the structural backdrop to the implementation of the White Paper and is being introduced when there is a great deal of uncertainty in all the different parts of the NHS, such as NHS Direct, which this week announced a whole load of job cuts too. Will the targets that PCTs are supposed to achieve, particularly in things like roll-out of practice-based commissioning, be altered in any way while they try to find their way though what seems inevitably to be a summer of job cuts and a winter of confusion?

Lord Warner: My Lords, there is quite a lot there to respond to. I will do my best to give coherent responses to the points made by the noble Earl, Lord Howe, and the noble Baroness, Lady Barker.
	Both raised the issue of redundancy. The £250 million is a conservative estimate of the savings likely to be made—a mixture of staff and non-staff savings, including real estate issues. When people study the changes more closely, they will see that there is a lot of emphasis on sharing back-office services and, in some cases, sharing management systems and doing joint commissioning, too. Some of these provide scope—confidently, we think—for £250 million, which will be a recurring saving. It is worth bearing in mind that the redundancies are a one-off payment to secure those recurring savings. We confidently predict that we will get four-year savings in 2008-09 and these will go, as I said when repeating the Statement, on front-line services. These will help particularly with areas around long-term conditions and some front-line services in acute services.
	On removing provider functions from PCTs, the Secretary of State, Patricia Hewitt, has made clear on a number of occasions—as have I—that we have no intention of requiring PCTs to divest themselves of their provider functions. However, the trusts will need to continue to ensure that the provider services in their area are fit for purpose. That is why we will be going through, as I said in the Statement, a process of ensuring their fitness for purpose, so that they can ensure that the right services are in place to meet the needs of all the people in their communities, including those in the areas of greatest deprivation, some of whom need new providers and alternative providers to be in place.
	Coterminosity was welcomed by the noble Baroness, Lady Barker. We have significantly increased coterminosity with social services through these changes. That was a big issue in the public consultation, which led to the White Paper. People want their services to be integrated. It was not possible to achieve 100 per cent coterminosity. We listened carefully to what local stakeholders said and we have adapted some of the proposals to meet those concerns. There is a balance to be struck in some parts of the country between coterminosity and meeting the needs of health inequalities—also having bodies in place that carry a great deal of public confidence. There is not a lot of point in going through an exercise where more than 12,000 people turn up at public meetings to debate and many more write in with their views, and not listen to those views—particularly where front-line staff such as GPs express their views on the most suitable configuration at a particular local level.
	I hear what both noble Lords say about big not necessarily being beautiful in relation to ambulance trusts. I note the welcome of the noble Earl, Lord Howe, for the arrangements in Staffordshire. We listened to the advice that was given to us by our National Ambulance Adviser, as I made clear in the Statement. Peter Bradley consulted a considerable stakeholder group before he fashioned the advice in the report mentioned in the Statement. His views were not the same as those of Roger Thane of Staffordshire—who, let me remind the noble Earl, has resigned and is no longer the chief executive of Staffordshire. Mr Thane has his views—he is entitled to them—but they are not the views expressed by our National Ambulance Adviser and are not necessarily the views which are shared by a large number of people in the ambulance service. We think it is essential to listen to that advice because it makes clear that a number of trusts need to be larger in order to provide the infrastructure and the capability to cope with the changing needs placed on our ambulance service.
	As to rural areas, these proposals will not change front-line services or where ambulance stations are located. There is nothing in the proposals which will require any ambulance trust to change its ambulance stations. Of course, over time, in all places, ambulance stations occasionally have to change because populations have the inconvenient habit of changing and people move to different parts of the country, but there is nothing in the proposals which in any way disadvantages rural areas.
	I have tried to deal with most of the points raised. I refute absolutely whatever is attributed to Sir Nigel Crisp in regard to changes driven by the manifesto. It is very clear that we need to strengthen the commissioning function in PCTs. The introduction of practice-based commissioning—which I can confirm we are still aiming to have in place across the country by the end of this year—changes the dynamic; it tends to push in the direction of larger PCTs and more combinations of PCTs because of the functions being carried out in the commissioning sector by GPs.

Baroness Shephard of Northwold: My Lords, perhaps the Minister can address the question posed directly by the noble Baroness and indirectly by my noble friend, which is this: if PCTs were such a good idea three years ago, why are they not now? What has the cost been to the taxpayer of this experiment?

Lord Warner: My Lords, let me remind the noble Baroness that before the election many PCTs were queuing up to merge because they had found that they could not discharge their obligations effectively and some had struggled with recruiting staff. This issue has been put into the public arena on a number of occasions. The situation has changed since PCTs were introduced. As I have said, we have practice-based commissioning coming along and the focus on commissioning services is much stronger now than was previously the case. We think the time is right to make this change now so that we can have a strong commissioning function. Alongside the changes caused by the introduction of foundation trusts and a national tariff through payment by results, we need a strong commissioning function. It is a new equation which has to be taken into account in making changes now.

Baroness Tonge: My Lords, what does the Minister understand to be the difference between practice-based commissioning and GP fund-holding?

Lord Warner: My Lords, the key difference is that GP fund-holding allowed people to keep the surpluses they engineered for their own purposes. Practice-based commissioning enables GPs, when they drive a more efficient array of services for their patients, to redeploy the surpluses into new services for patients.

Baroness Masham of Ilton: My Lords, what is the position in regard to the splendid work of the air ambulances? Many of these are voluntarily funded and when there is change there is always some uncertainty. Will the Minister tell the House the position? I know that a life was saved yesterday by one of them.

Lord Warner: My Lords, there are no proposals which in any way adversely affect the splendid work done by the air ambulance services. The noble Baroness may know that we have been putting more public funding into air ambulances over the past year or so. I shall write to her with more details of that.

Lord Mackie of Benshie: My Lords, will the Minister say a little more about co-ordinating the larger areas? In country areas and in towns, it is most important that ambulance service drivers know where all the houses are. If you have a large area and you are going to save money, you will have spare drivers who you can allocate around. But this is not good enough because there is no question that the speed at which an ambulance arrives at any accident or illness is very important, particularly in country areas. I should like an assurance that this fact will be taken into account.

Lord Warner: My Lords, as I said in response to an earlier question, there are no proposals in these changes to alter the location of ambulance stations, which are the places from where people drive ambulances to provide services to patients. It is true that across the country already there is a significant variation in the types of vehicles being used, but increasingly across the whole of the ambulance service satellite navigation systems are in place which enable people to find their way by the quickest routes. We also know that no ambulance trust will put people in charge of ambulances without the appropriate training to ensure that they can meet the kinds of requirements that the public expect.

Lord Colwyn: My Lords, will these changes have any effect on the commissioning of dental services from PCTs?

Lord Warner: My Lords, we have of course ring-fenced the money for dental service changes. The current PCTs are making a good job of commissioning services where there is a need, and this will continue under the new arrangements.

Company Law Reform Bill [HL]

Further consideration of amendments on Report resumed.

Lord Sainsbury of Turville: moved Amendment No. 443:
	After Clause 623, insert the following new clause—
	"PART 21 A COMPANY'S ANNUAL RETURN
	DUTY TO DELIVER ANNUAL RETURNS
	(1) Every company must deliver to the registrar successive annual returns each of which is made up to a date not later than the date that is from time to time the company's return date.
	(2) The company's return date is—
	(a) the anniversary of the company's incorporation, or
	(b) if the company's last return delivered in accordance with this Part was made up to a different date, the anniversary of that date.
	(3) Each return must—
	(a) contain the information required by or under the following provisions of this Part, and
	(b) be delivered to the registrar within 28 days after the date to which it is made up."

Lord Sainsbury of Turville: My Lords, in moving Amendment No. 443, I shall speak also to Amendments Nos. 444 to 448, 495 and 497.
	The proposed new clauses in Amendments Nos. 443 to 448 replace the provisions in the 1985 Act which deal with the annual returns companies must make to the Registrar of Companies. The clauses retain the existing requirement for a company to file every year a return that, in effect, updates key information required for the public record. It is a relatively simple and effective way of ensuring that the public record is kept up-to-date. To minimise the burden on companies, Companies House provides most companies with a provisional return which already includes much of the current information held by the registrar and which is required to be included in the annual return. This helps the company concerned because it simply needs to check and amend its information, either on a computer screen or by marking up changes on a paper form. The majority of companies now perform this task on line.
	The clauses do not change the existing requirements as to what information is required, and they retain the power for regulations to change these requirements. However, this power differs from the existing power in that it specifically provides for regulations to make exceptions from the general requirements.
	At present, the annual returns of companies with shareholders are required to provide the names and addresses of all who hold shares in the company or did so during the year covered by the return, together with details of their holdings. When in future, as the Bill provides, companies will be able to apply to the courts to be relieved from the obligation to provide a copy of their register of members if it is not sought for a proper purpose, I fear it is inevitable that those who want members' addresses for other purposes will look elsewhere and probably seek to get them from Companies House instead. We intend to use the power taken in Amendment No. 446 to prevent that.
	Subject to consultation, we propose that for private companies with a share capital, the prescribed details to be included in the annual return should exclude addresses of members. That information will still be available from the company, but only if it is sought for a proper purpose. For public companies, we propose that there be an exemption from the requirement for all members' details to be included in the annual return if the prescribed information is provided for those who have held a significant holding during the year in question. Our consultation will also seek views on what the prescribed information should be.
	Amendments Nos. 495 and 497 are consequential to Amendments No. 443 to 448 and ensure the cross references are correct. I beg to move.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 444 to 448:
	After Clause 623, insert the following new clause—
	"CONTENTS OF ANNUAL RETURN: GENERAL
	(1) Every annual return must state the date to which it is made up and contain the following information—
	(a) the address of the company's registered office;
	(b) the type of company it is and its principal business activities;
	(c) the prescribed particulars of—
	(i) the directors of the company, and
	(ii) in the case of a public company, the secretary or joint secretaries;
	(d) if the register of members is not kept available for inspection at the company's registered office, the address of the place where it is kept available for inspection;
	(e) if any register of debenture holders (or a duplicate of any such register or a part of it) is not kept available for inspection at the company's registered office, the address of the place where it is kept available for inspection.
	(2) The information as to the company's type must be given by reference to the classification scheme prescribed for the purposes of this section.
	(3) The information as to the company's principal business activities may be given by reference to one or more categories of any prescribed system of classifying business activities."
	After Clause 623, insert the following new clause—
	"CONTENTS OF ANNUAL RETURN: INFORMATION ABOUT SHARE CAPITAL AND SHAREHOLDERS
	(1) The annual return of a company having a share capital must also contain—
	(a) a statement of capital, and
	(b) the particulars required by subsections (3) to (6) about the members of the company.
	(2) The statement of capital must state with respect to the company's share capital at the date to which the return is made up—
	(a) the total number of shares of the company,
	(b) the aggregate nominal value of those shares,
	(c) for each class of shares—
	(i) prescribed particulars of the rights attached to the shares,
	(ii) the total number of shares of that class, and
	(iii) the aggregate nominal value of shares of that class, and
	(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
	(3) The return must contain the prescribed particulars of every person who—
	(a) is a member of the company on the date to which the return is made up, or
	(b) has ceased to be a member of the company since the date to which the last return was made up (or, in the case of the first return, since the incorporation of the company).
	The return must conform to such requirements as may be prescribed for the purpose of enabling the entries relating to any given person to be easily found.
	(4) The return must also state—
	(a) the number of shares of each class held by each member of the company at the date to which the return is made up,
	(b) the number of shares of each class transferred—
	(i) since the date to which the last return was made up, or
	(ii) in the case of the first return, since the incorporation of the company,
	by each member or person who has ceased to be a member, and
	(c) the dates of registration of the transfers.
	(5) If either of the two immediately preceding returns has given the full particulars required by subsections (3) and (4), the return need only give such particulars as relate—
	(a) to persons ceasing to be or becoming members since the date of the last return, and
	(b) to shares transferred since that date.
	(6) Where the company has converted any of its shares into stock, the return must give the corresponding information in relation to that stock, stating the amount of stock instead of the number or nominal value of shares."
	After Clause 623, insert the following new clause—
	"CONTENTS OF ANNUAL RETURN: POWER TO MAKE FURTHER PROVISION BY REGULATIONS
	(1) The Secretary of State may by regulations make further provision as to the information to be given in a company's annual return.
	(2) The regulations may—
	(a) amend or repeal the provisions of sections (Contents of annual return: general) and (Contents of annual return: information about share capital and shareholders), and
	(b) provide for exceptions from the requirements of those sections as they have effect from time to time.
	(3) Regulations under this section are subject to negative resolution procedure."
	After Clause 623, insert the following new clause—
	"FAILURE TO DELIVER ANNUAL RETURN
	(1) If a company fails to deliver an annual return before the end of the period of 28 days after a return date, an offence is committed by—
	(a) the company,
	(b) subject to subsection (4)—
	(i) every director of the company, and
	(ii) in the case of a public company, every secretary of the company, and
	(c) every other officer of the company who is in default.
	(2) A person guilty of an offence under subsection (1) is liable on summary conviction to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.
	(3) The contravention continues until such time as an annual return made up to that return date is delivered by the company to the registrar.
	(4) It is a defence for a director or secretary charged with an offence under subsection (1)(b) to prove that he took all reasonable steps to avoid the commission or continuation of the offence.
	(5) In the case of continued contravention, an offence is also committed by every officer of the company who did not commit an offence under subsection (1) in relation to the initial contravention but is in default in relation to the continued contravention.
	A person guilty of an offence under this subsection is liable on summary conviction to a fine not exceeding one-tenth of level 5 on the standard scale for each day on which the contravention continues and he is in default.
	(6) References in this section to delivery of a return to the registrar are to the delivery of a return in relation to which all the requirements mentioned in section 693(1) (requirements for proper delivery) are complied with."
	After Clause 623, insert the following new clause—
	"APPLICATION OF PROVISIONS TO SHADOW DIRECTORS
	For the purposes of this Part a shadow director is treated as a director."
	On Question, amendments agreed to.
	Clause 625 [Rules]:

Lord Goldsmith: moved Amendment No. 449:
	Page 304, line 35, leave out from beginning to "had" in line 38 and insert "in the City Code on Takeovers and Mergers as it"

Lord Goldsmith: My Lords, I shall also speak to Amendments Nos. 462 and 463. The noble Lord, Lord Hodgson, will recognise the substance of Amendment No. 449. It follows an amendment he proposed in Committee to delete the reference to the rules governing substantial acquisitions of shares, the SARs, from the description of the proposed rule-making power to be provided to the Takeover Panel by Clause 625. We could not accept the amendment at that time, not because of any substantive difference of opinion between us but because the Takeover Panel was still in the process of considering the responses received to its own consultation on the relevance of the SARs. The panel announced the outcome of its deliberations on 21 April and the SARs will go from 20 May, so the reference to them in Clause 625 becomes redundant.
	There is still latitude within Clause 625 to enable the panel, should they so choose in the future, to make rules having statutory effect about the sort of matters that were subject to the SARs. I draw attention to that because Clause 625(2)(c) enables the panel to make rules about cases where a takeover bid or other similar transaction is or has been contemplated or apprehended, but that is for the future.
	So far as Amendments Nos. 462 and 463 in this group are concerned, they are simply minor tidying-up exercises as a result of changes we agreed in Committee. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, we are very grateful to the noble and learned Lord for making this change. A number of practitioners were saying what a shame it was that we were beginning with a Bill that was already slightly out of date. It is therefore good news that we can remove that particular line.

On Question, amendment agreed to.
	Clause 630 [Restrictions on disclosure]:
	[Amendment No. 450 not moved.]

Baroness Noakes: moved Amendment No. 451:
	Page 307, line 13, at end insert "has been authorised by the Panel and"
	On Question, amendment agreed to.
	[Amendments Nos. 452 to 456 not moved.]
	[Amendment No. 457 had been withdrawn from the Marshalled List.]
	[Amendment No. 457A not moved.]
	Schedule 2 [Specified persons, descriptions of disclosures etc for the purposes of section 630]:

Lord Sainsbury of Turville: moved Amendment No. 458:
	Page 438, line 32, leave out "Commissioners to exercise their" and insert "Commission to exercise its"
	On Question, amendment agreed to.

Lord Goldsmith: moved Amendment No. 459:
	Page 439, line 35, leave out "1995 (S.I. 1995/3272)" and insert "2001 (S.I. 2001/3755)"

Lord Goldsmith: My Lords, this is a minor technical amendment to the disclosure gateways list that applies to information held by the Takeover Panel. The present reference to the gateway with regard to enabling or assisting a person approved under the Uncertificated Securities Regulations 1995 is updated. Those regulations make a provision regarding the transfer of securities in accordance with a computer-based system. All procedures have now been repealed and replaced by a 2001 instrument. I beg to move.

On Question, amendment agreed to.
	[Amendments Nos. 460 and 461 not moved.]
	Clause 633 [Hearings and appeals]:

Lord Sainsbury of Turville: moved Amendments Nos. 462 and 463:
	Page 309, line 18, leave out "625(4)" and insert "625(5)"
	Page 309, line 21, leave out "625(4)" and insert "625(5)"
	On Question, amendments agreed to.
	Clause 634 [Sanctions]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 464:
	Page 309, line 28, at end insert ", or
	( ) failed to comply with rules about documentation by virtue of section 635"

Lord Hodgson of Astley Abbotts: My Lords, I rise to move Amendment No. 464 and speak to Amendments Nos. 465, 468, 471, 472, 473 and 475, which concern Clauses 634 and 635. I must apologise to the House, as Amendment No. 469 somehow got tabled in error. I do not think it should be in this group at all, and we will not be seeking to move it.
	This takes us to a proposal that we believe still looks suspiciously like gold-plating of the EU takeovers directive. We have just discussed this in Grand Committee, and the noble and learned Lord the Attorney-General said:
	"The starting point is Article 17 of the takeovers directive, which requires member states to put in place sanctions which are 'effective, proportionate and dissuasive'. That is to ensure the rules of the directive are complied with".—[Official Report, 28/3/06; col. GC 304.]
	The directive therefore requires that a failure to comply with the rules about bid documentation must be subject to sanctions of the kind that satisfy Article 17. The Government have so far taken the approach that only a criminal offence will do, stating that they do not believe the panel will otherwise have sufficient power to take effective action, in directive terms, against any such failure.
	The sanctions attributed to the panel, which the Government believe are insufficient for this purpose, are these: public and private censure or reporting of conduct to another regulatory body, as well as action to issue directions to those responsible to put the matter right. This list has overlooked a further power the panel has under the Bill that I believe would adequately satisfy the requirements of Article 17: the power to order a person to pay compensation under Clause 636. In conjunction with the sanctions I have just listed, that seems to be ample penalty to provide an adequate deterrent as required by Article 17 of the directive.
	There is another reason why we on these Benches say this is not an appropriate area for a criminal offence. The proposed offence would be for failing to comply with offer document rules. Those rules are made by the Takeover Panel itself. As we discussed at length in Grand Committee, the panel is now to become a statutory body, with all the associated powers that come with that status. However, it will retain much of its independence. We will have a situation where an independent body, subject to very little formal parliamentary scrutiny, will be able, by altering its rules, to create new forms of criminal offences. We wonder whether that is a desirable outcome.
	For those noble Lords who were not present in Grand Committee, I am not arguing for greater control of the panel. As I said then, the panel has been a great success, and we do not wish to clip its wings with unnecessary bureaucracy. We would therefore argue strongly against limiting the independence of the panel simply to permit a criminal offence for failure to meet the rules about bid documentation in order to comply—or, in our view, to over-comply—with the EU takeovers directive. Surely, the simpler and correct approach is to allow the panel to deal with such a breach by means of the sanctions under the Bill, which more than adequately meet the requirements of Article 17.
	Since Grand Committee, we have carried out a little research into how other European states have implemented the directive. Our advisers tell us that in Ireland, for example, where they already have a statutory framework, when rules on offer document contents are breached it appears to be a civil liability. We are told that the same is true in Germany. If these states, which are subject to the same directive as this country, do not see the need to implement this as a criminal offence, there is no reason why the Government should feel so compelled. Therefore, in light of this new information, I beg to move Amendment No. 464, which I hope the Government will feel able to accept.

Lord Patten: My Lords, one should be properly cautious when rising from one's place to intervene if one has not been present at a Grand Committee, where complex issues such as this one were discussed fully. However, I have spoken in other parts of your Lordships' proceedings, and while I plead guilty to not having been present in Grand Committee when this issue was debated, I rise in strong support of what my noble friend Lord Hodgson of Astley Abbotts has just said. Governments of both political colours—not only the present Government, but earlier Conservative Administrations—have been accused, sometimes rightly, of going too far down the road of fulfilling what they see as the outcomes desired by an EU directive, or—to use the excellent phrase of my noble friend—of gold-plating.
	That is not desirable in this case. We now have far too many new potential criminal offences being introduced, hand over hand, in this country. I do not speak of the 43 criminal justice Acts we have seen in the last nine years. One should proceed very cautiously before bringing into law new potential criminal offences which may never be used, may frighten practitioners, and may lie unnoticed on the statute book. That is not good legislation. My noble friend has put his finger on it: we should leave it to the panel. If other European jurisdictions can manage perfectly well without going this far, why on earth should this Administration go to the lengths of gratuitously introducing new and unnecessary criminal offences?

Lord Goldsmith: My Lords, in introducing his amendment, the noble Lord, Lord Hodgson of Astley Abbotts, rightly identified the starting point in Grand Committee. The Government believe that the requirements of Article 17 of the takeovers directive will not be satisfied simply by relying on the sanctions which the panel has at its disposal and is likely to be prepared to use. The noble Lord referred to what is happening in Ireland and Germany. I do not have details of that, so I cannot respond specifically to what he says. I certainly do not have details of, for example, the sanctions available to the pertinent bodies, or their practice in using them. There may be differences in practice that justify taking a different approach to the necessity of having a criminal offence.
	I shall briefly summarise the points I made in Grand Committee and then pick up those raised by the noble Lords, Lord Hodgson and Lord Patten. There has been detailed discussion of, and consultation on, this matter. It is not intended to prevent the panel exercising its own powers, but—this is an important point, dealing with the issue of compensation, raised by the noble Lord—my understanding is that the panel does not want to police breaches after the event. The panel operates, during the course of a bid, by calling somebody in, requiring them to change the terms of their document so as to comply with the rules, and so forth. That is why, in particular, the power to order compensation does not appear to be an adequate sanction. I can also envisage circumstances in which the power to order compensation would not, in itself, be adequate because it would be difficult to identify just what the compensation ought to be. Certainly, given the time involved, the panel would not want to police breaches after the event in this way.
	The second concern raised by the noble Lord was the possibility that the panel might, by changing the contents of the rules, enlarge the effect of a criminal offence. That theory is wrong because the offence relates to failures—I shall return to the terms of those failures—to comply with the rules about bid documentation. It identifies the relevant rules in Clause 635 by reference to the directive itself. "Offer document" means rules designated, or rules that give effect to Article 6.3 of the directive. "Response document" means a document required to be published by rules giving effect to Article 9.5 of that directive. The relevant documents, which are the subject matter on which a criminal offence can be founded, must meet the requirements of Articles 6 and 9 of the directive. No doubt, because these are directives, there is some scope for the precise content, but they still have to meet the requirements of Articles 6 and 9. They are limited by the boundaries of Articles 6 and 9, so it is not possible simply to extend them in that way.
	A further point I want to emphasise is that we have looked carefully at whether the scope and clarity of the offence is sufficient. When I come to government amendments relating to this clause, we want to refine those in light of comments made in Grand Committee. When that is done we should see two things. The first is an offence that is clearly defined. The second is a light-touch approach to a criminal offence. I say this because we have not focused on it before: breach of the only rule giving rise to an offence arises, as subsection (3) says, only where the person knows that the offer document did not comply or was reckless about compliance.

Lord Hodgson of Astley Abbotts: My Lords, could the noble and learned Lord foreshadow—without firing his ammunition in respect of these later amendments—which amendments he is referring to when he speaks of refining the offence under this clause?

Lord Goldsmith: My Lords, we have discussed the persons subject to the offence, and we will come back in the amendments to the position of those who are directors of corporate bodies standing behind a bid. We debated this in Grand Committee. I emphasise that we have looked at that. I hope noble Lords will recognise that in this area, as in others, we have listened very carefully to what has been said by Members opposite, those on the Liberal Democrat Benches, and others who have participated. Where we have seen that there is a point, we have responded to it. We responded very substantially earlier today to the amendments I have been dealing with concerning auditors' liability and directors' duties. We have looked at this and seen that there is a need to make some refinements to those who are subject to it. As the Government responsible for implementing the directive, we take the view that unless we have an offence—albeit a light-touch offence—we will not be meeting the terms of the directive.
	There are good reasons why the panel's powers would not be adequate if it was not prepared to exercise those powers after the event. That area needs to be met. Where the Government have taken the view that they need to do something to meet their international obligations, the House should be very slow indeed not to accept that, particularly given that, at the end of the day, the only person at risk would be somebody who knew that an offer document did not comply and was reckless as to whether it complied, but went ahead with it anyway.
	The noble Lord, Lord Patten, was concerned that this might frighten practitioners. Someone who knows that he is putting forward a document that is non-compliant or is reckless about doing so should, in a sense, be frightened. He ought to be doing it right. I am sure that those participating in this debate have been personally involved in offer documentation, as I have, and know the huge amount of attention that all practitioners pay to what is going on. Only someone who is really reckless or intent on breaking the rules will find themselves in breach of this provision.

Lord Patten: My Lords, the noble and learned Lord the Attorney-General is quite right that people—practitioners, or whoever they are—should be fearful of the criminal law when it has been passed into statute. However, I genuinely seek education from him. I am self-evidently not a lawyer, but I know that words spoken by Ministers and reported in Hansard—particularly those spoken by noble and learned Lords such as the Attorney-General—can be carefully studied in future years. I have never heard the term "light-touch offence" before. I thought an offence was an offence was an offence. What does "light touch" mean in this context?

Lord Goldsmith: My Lords, I am happy to respond to that invitation. I meant that we could have said, "We need a criminal offence, so we will make it one that is committed not only where someone acts in a sharp, deliberate way to break the rules, or is reckless, but if someone breaks the rules through negligence". Someone could be careless and put forward an offer document which does not comply. We could even have said that people are guilty of criminal offences where there is no fault but they have broken the rule. It happens from time to time and we call those offences of strict liability. We could have done all those things; there are other ways in which this could have been a much more onerous criminal responsibility. That is what I meant by "light touch". We have taken the view that, to meet our international obligations, we need to have something which provides the possibility of a criminal offence, but we have put it as narrowly as possible. That is the response to the accusation of gold-plating. Once upon a time, gold-plating used to be rather a good thing to do, but in this context it is not.

Lord Hodgson of Astley Abbotts: My Lords, the noble and learned Lord the Attorney-General is always very persuasive. I begin, as he ended, by talking about gold-plating. He said that there has been extensive consultation. He said that Clause 636, which deals with compensation, is not good enough because the panel will not use the power—it does not want to. But the power exists.

Lord Goldsmith: My Lords, I also said that I could envisage cases in which the power to provide compensation would not meet the problem. There are certain requirements for the provision of information in which other people are interested, such as employees; the rules may require arrangements in relation to employees to be provided in an offer document. I am doubtful whether a power to provide compensation would meet a failure in that respect.

Lord Hodgson of Astley Abbotts: My Lords, I understand that there were two barrels to that argument. One was that although the panel had the power, it would not want to use it. The noble and learned Lord said that we need not be concerned because the panel could not enlarge the offences. My concern was not about enlarging but altering them. As the nature of what is required in the offer document changes, so does the nature of the offence. In addition, my noble friend Lord Patten mentioned the issue of the light touch.
	We read very carefully what the noble and learned Lord said in Committee, which is why we tried to find out what other people were doing about this. We have been unable to find any other country that has found it necessary to introduce a criminal offence to cover this point. We on these Benches are very concerned about gold-plating. We admire what the panel has done; we do not wish to see it dragged any further into the criminal justice system. Its success in the past has been its light touch. We understand that it cannot continue to be a self-regulatory body because of the EU takeovers directive. However, I think that this is a step in the wrong direction and I wish to test the opinion of the House.

On Question, Whether the said amendment (No. 464) shall be agreed to?
	Their Lordships divided: Contents, 54; Not-Contents, 123.

Resolved in the negative, and amendment disagreed to accordingly.
	Clause 635 [Failure to comply with rules about bid documentation]:
	[Amendment No. 465 not moved.]

Baroness Pitkeathley: My Lords, I should point out that if Amendment No. 466 is agreed to, I shall not be able to call Amendment No. 467 for reasons of pre-emption.

Lord Goldsmith: moved Amendment No. 466:
	Page 310, line 18, leave out paragraph (b) and insert—
	"(b) where the person making the bid is a body of persons, any director, officer or member of that body who caused the document to be published."

Lord Goldsmith: My Lords, in moving Amendment No. 466, which stands in the name of my noble friend Lord Sainsbury, I wish to speak also to government Amendments Nos. 470 and 474 and to Amendment No. 467.
	In Committee the noble Lords, Lord Hodgson and Lord Sharman, proposed amendments in relation to the proposed bid documentation offence at Clause 635, which was the subject of the previous debate. Certain of those matters are being pursued further today. If I understood the purpose behind those amendments correctly, they sought both to provide greater certainty as regards those potentially liable for the bid documentation offence and to narrow the scope of such persons.
	As I foreshadowed in what I said in the previous debate, we have reflected further on the scope of the bid documentation offence in the light of those amendments and those concerns. We have also discussed the coverage of the bid documentation offence with lawyers responsible for advising bidders on the preparation of offer and response documents. The present amendments result from those discussions and deliberations.
	Amendments Nos. 466, 470 and 474 seek to do two things. The first is to restrict liability for the offence in respect of offer documents to the bidder or any director, officer or member of the bidder who caused the bid document to be published. This has the important consequence of relieving employees and agents of the bidder from potential liability for the offence and the additional costs that might have arisen from this; for example, to professional advisers.
	Secondly, we have sought to clarify the intention behind the provision related to the liability of officers where the offence is committed by a corporate body. This aims to ensure that where, for instance, a corporate director is liable, then the directors of that corporate body can also be pursued. The intention has never been to make the directors of the corporate body strictly liable, which was a concern expressed in Committee.
	Amendment No. 467, which stands in the names of the noble Lords, Lord Sharman and Lord Razzall, proposes a different approach. It aims to link liability for the offence to the person responsible for the offer document in accordance with the rules of the Takeover Panel. We carefully examined this approach. I recognise that it has merits but we decided to pursue the formulation that we have taken as the panel rules do not provide absolute clarity as to the person responsible in all cases and there is an element of discretion available to the panel. For instance, the panel may consent to certain directors not being responsible in exceptional circumstances. We think that our solution produces a similar result to that proposed by this amendment in most cases, but has the advantage of greater certainty.
	I very much hope that noble Lords will agree that our amendments meet the concerns which have been expressed. I hope that they will find support. I beg to move.

Lord Sharman: My Lords, I thank the noble and learned Lord the Attorney-General for responding to the concerns raised in the debate on this issue in Committee. I recognise that his approach is a little different from the one that we suggested, but I am content that it achieves the same ends. I will therefore not move Amendment No. 467.

On Question, amendment agreed to.
	[Amendments Nos. 467 to 469 not moved.]

Baroness Pitkeathley: My Lords, if Amendment No. 470 is agreed to, I cannot call Amendments Nos. 471 or 472.

Lord Goldsmith: moved Amendment No. 470:
	Page 310, line 24, leave out subsection (4).
	On Question, amendment agreed to.
	[Amendments Nos. 471 to 473 not moved.]

Lord Goldsmith: moved Amendment No. 474:
	Page 310, line 32, at end insert—
	"( ) Where an offence is committed under subsection (2)(b) or (5) by a company or other body corporate ("the relevant body")—
	(a) subsection (2)(b) has effect as if the reference to a director, officer or member of the person making the bid included a reference to a director, officer or member of the relevant body;
	(b) subsection (5) has effect as if the reference to a director or other officer of the company referred to in subsection (1) included a reference to a director, officer or member of the relevant body."
	On Question, amendment agreed to.
	[Amendment No. 475 not moved.]
	Clause 650 [Effect on contractual restrictions]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 476:
	Page 317, line 24, leave out "in value of all the voting shares" and insert "of the capital carrying voting rights"

Lord Hodgson of Astley Abbotts: My Lords, in moving the amendment I shall speak also to Amendment No. 477. We return to a point on which, when we discussed it in Grand Committee, I received a slightly baffling response from the noble and learned Lord. The amendments that we proposed then, and indeed the amendments we propose now, replace what is currently in the Bill with the wording in the directive. The reason behind the change is the uncertainty of the words "in value". When we pressed for an explanation of the meaning, the noble and learned Lord the Attorney-General replied:
	"Regarding the specific question of the words 'in value' in the clause, we think it is clear what they mean: they refer to the nominal value of shares, so to achieve the breakthrough threshold the bidder must reach 75 per cent of the nominal value of the company's voting shares".—[Official Report, 28/3/2006; col. GC318.]
	I could not understand that answer then. I said then, and I repeat now, that nominal value bears no relationship to market value. If adopted as the standard for this clause, it could provide a skewed result owing to the different nominal value attaching to different classes of shares. We could find that a very few people holding high nominal value shares with a low market value could effectively control the company, despite the other shareholders owning a far greater amount in market value simply because the nominal value allocated to their shares was low. I am sure that that cannot be right. It would mean that different voting weights would be attached to shares, which though having the same rights would have different nominal values. I hope that the noble and learned Lord has thought again on this question. I always give way on matters such as Foss v. Harbottle, but this is a practitioner City matter and I am sure that this cannot be the right way to approach it. Maybe we are at odds over nominal and real market values. I beg to move.

Lord Goldsmith: My Lords, I recall the debate in Grand Committee and the reaction when I answered the question in the way that the noble Lord quoted. I will try to explain where the difficulty lies. Article 11.4 of the takeover directive uses a concept unfamiliar to English company law in terms of its language; that is, it talks of the offeror holding 75 per cent or more of the capital carrying voting rights. It is the concept that the noble Lord wants to insert by way of amendment, but it is not in itself a concept that is presently familiar to the English companies market, if I may put it that way. So we have tried to use an expression that will be familiar to the English company market rather than using that phrase.
	If one is looking to see what is 75 per cent of the capital carrying voting rights, I stand by saying that in the majority of cases normally one would find that by looking at the nominal value of the shares and seeing whether they hold 75 per cent or more. Plainly in the case where we have only one class of share, no difficulty at all arises. In the situation where one has more than one class of share, no real difficulty may arise; there may be some difference in the market value of the shares at a particular stage but the voting rights may still appear to be broadly comparable to the nominal value.
	What will the court make of it? The Bill does not say "nominal value"; it says, "value". It has been left in that sense so that it will be for the court to interpret what is meant. I answered the question because I was asked and it is right that we should indicate what we think. How will the court interpret it? The court will need to interpret this provision in the same way as it would interpret other provisions in a statute where it is plain that the intention has been to implement a directive. So I have little doubt that they will look at the directive and say that in understanding it they need to understand that it is intended to implement the requirements of Article 11.4
	I doubt whether it will make much difference in many cases. There may be some cases—this is where the concern may have arisen over what I said—where the structure of the company is such that the court would say that if we are really looking at 75 per cent of capital carrying voting rights, it is not appropriate on this occasion just to look at the nominal value because the structure of the company is extraordinary: someone has 90 per cent of the nominal value for virtually nothing and the rest of the shareholders, who have only 10 per cent of the nominal value, have the real bulk of the company. I can see that one could have such a company and in those circumstances the court may say that 75 per cent of value in that context is to be interpreted in a different way. But in many cases—perhaps the majority—75 per cent in value of all the voting shares would be taken to mean the nominal value for the reasons that I have given.
	So it is not straightforward: we do not know what the European Court of Justice would make of capital carrying voting rights, or 75 per cent of those in any event. That could influence what the English court ultimately made of any of this. In most cases, whether the breakthrough provision is calculated on the basis of nominal or market value, the result would be exactly the same.
	The point is that the amendment proposed by the noble Lord does not add any greater clarity because it uses an expression that does not mean much in itself. The provision as we have it in the Bill will have to be interpreted against that background. So the noble Lord can feel reassured that when it comes to interpreting what is meant by value, what is going to matter is not what I have said about it but what the court makes of the clause against the background of the directive.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the noble and learned Lord the Attorney-General for his considered response. I accept that capital carrying voting rights is not the wording that is familiar in English financial practice. I therefore accept that our amendments are deficient in that sense; they do not advance the arguments sufficiently. I am always reluctant to leave a situation where we could clarify matters beyond peradventure and say that the courts will sort that out. That may be helpful for lawyers but it is an unsatisfactory way of proceeding.
	I shall reflect on that, take some advice and consider whether inserting the word "market" might not sort the whole thing out. Dealing with the market value of the voting shares might be another way of tackling the matter and making it clear for ever that that is what we are about.

Lord Goldsmith: My Lords, of course I am content for the noble Lord to do that, but perhaps I may invite him to consider this. The problem with the suggestion is, first, whether one would then be against the meaning of the directive. Secondly, I can see real difficulties in identifying at any moment what is 75 per cent of the market value. Do you take the value of the shares on day 1 or on the Wednesday? The fact that a breakthrough has, has not or may have taken place can in itself affect the value of the shares, and during a bid there might be a considerable movement in the value of the shares. The noble Lord's suggestion would be difficult in practice, but I invite him to take that into account when he takes his advice.

Lord Hodgson of Astley Abbotts: My Lords, I am always ready to learn from the Attorney-General and to follow the avenues that he has already travelled. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 477 not moved.]

Lord Goldsmith: moved Amendment No. 478:
	Page 318, leave out lines 10 to 14 and insert—
	"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."

Lord Goldsmith: My Lords, these amendments take up discussions we had during Committee as to the precise meaning of some of the other complex provisions of the takeovers directive. We have returned to Article 11. The provisions of that directive are given effect to by chapter 2 of Part 22 of the Bill. The amendments are concerned with the types of "securities" falling within the scope of the directive.
	On its face, the takeovers directive is relatively explicit on this point. It states at Article 2 that "securities" means,
	"transferable securities carrying voting rights".
	That short definition cannot be expected to cover in detail a whole range of different security instruments that exist across the EU. We must work out what principles it lays down. For the purposes of the domestic implementing legislation, we talk of "shares" rather than "securities", as we think that that is more natural in terms of existing companies legislation..
	So, we need to capture the concept of "shares carrying voting rights". There is a long-standing argument as to whether that means voting rights in all circumstances, or whether it includes voting rights that arise only in exceptional circumstances. For example, with some "preference shares", there will be a right to vote, but that will arise only when the dividend has not been paid. There will be other categories of shares that carry no voting rights, except on specific matters, such as any variation of the class rights relating to those shares.
	In the UK, different types of shares are not defined. Instead, the voting rights and the other rights attributable to the shares are generally prescribed, in the first instance at least, by the articles of association. The inevitable result is that there are many variations on the types of shares that can exist.
	By these amendments, we seek to cut the Gordian knot. They would provide that, in determining the breakthrough threshold and the mechanics of the operation of breakthrough, where the different interpretation has real practical effect, shares that do not normally carry rights to vote at general meetings will be excluded. We think that that drafting reflects the policy intent of the directive. It benefits from being absolutely clear whether a share is a voting share or not, at least in the vast majority of cases. In the most exceptional cases, that matter might have to be determined by the court; but we would have gone a long way to avoid the need for that. Parallel amendments on this matter are also proposed regarding Clauses 651 and 654.
	Perhaps I may conclude with two further observations. First, companies can help themselves. Breakthrough has not been imposed on UK companies and we have left companies considerable flexibility as to the structure of their articles where they choose to opt in to the breakthrough regime. Secondly, we understand that the majority of UK companies falling within the scope of the takeovers directive have only one class of share, which generally has voting rights. Such shares will be caught by the breakthrough provisions and by the definition that we propose. I beg to move.

On Question, amendment agreed to.
	Clause 651 [Power of offeror to require general meeting to be called]:

Lord Goldsmith: moved Amendment No. 479:
	Page 318, leave out lines 24 to 28 and insert—
	"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."
	On Question, amendment agreed to.
	Clause 654 [Transitory provision]:

Lord Goldsmith: moved Amendment No. 480:
	Page 320, leave out lines 14 to 18 and insert—
	"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."
	On Question, amendment agreed to.
	Clause 656 [Matters to be dealt with in the directors' report]:

Lord McKenzie of Luton: moved Amendment No. 481:
	Page 322, line 29, leave out from second "7" to end of line 31.
	On Question, amendment agreed to.
	Schedule 3 [Amendments to Part 13A of the Companies Act 1985]:

Lord Sharman: moved Amendment No. 482:
	Page 442, line 2, at end insert—
	:TITLE3:"Section 425: Power of company to compromise with creditors and members
	"(1) Section 425 of the Companies Act 1985 (c. 6) is amended as follows.
	(2) In subsection (2) (arrangement or compromise to be binding) for "majority in number" substitute "creditors or members".
	(3) After subsection (2) insert—
	"(2A) The court will have the power to sanction a compromise or arrangement under subsection (2) notwithstanding any defect in the constitution of any class, provided that the court is satisfied that such defect has not affected the fairness of the compromise or arrangement.""

Lord Sharman: My Lords, we return to a matter that we debated in Grand Committee; namely, the ability of the courts to exercise discretion in terms of sanctioning schemes of arrangements. The purpose of the amendment is to grant that discretion to the court even if the relevant classes have not been correctly constituted, provided that the fairness of the scheme is not affected in any way. The amendment also seeks to dispense with the requirement that a majority in number of the creditors or members must agree to a scheme of arrangement for it to be binding.
	The Law Society advised us that the amendment to Section 425 of the Companies Act on the lines recommended by the Company Law Review would enable the court to sanction a scheme of arrangement notwithstanding a technical defect in the constitution of classes, provided that the defect would not affect the fairness of the arrangement. We took note of the comments made by the noble and learned Lord, Lord Goldsmith, in Grand Committee, and the proposed new arrangement would allow the court to sanction the scheme only where the court was satisfied that the defect did not affect the fairness of the scheme—that is, if it was only a technical defect.
	In addition, we are pressing for the removal of the requirement for the approval of a scheme by a majority in number of those voting, as well as three-quarters by value. The majority in number test is not, as far as I am aware, contained anywhere else in company law and there is no special reason why such protection should be required for schemes of arrangement, but not for other corporate transactions. Indeed, the majority in number, focusing on a majority of registered holders is an anachronism, now that most retail holders hold through the CREST nominees, where one registered holder may represent many thousands of beneficial owners. It is also open to abuse by shareholders who could subdivide their holding through a number of nominee companies. I beg to move.

Lord Goldsmith: My Lords, as the noble Lord said, there are two parts to the amendment. The part that he has just referred to would dispense with the requirement that a majority in number of the creditors or members must vote in favour of a scheme for it to be binding. The noble Lord's amendment provides that it would be enough if three-quarters by value did so. The Company Law Review observed that that would mean that larger creditors and members could impose their will unfairly on smaller creditors and shareholders. Protection would be removed by this part of the amendment.
	It could be said, "Well, we could rely upon the court's discretion to protect those members". That is not a satisfactory answer—why should the court have a better view of the interests of those persons than they have themselves? So, in principle, I could not accept the amendment. The noble Lord tempts us by painting a picture of abuse taking place, with people splitting their shareholdings up into a series of nominee companies. It may be that he has evidence that that takes place; if so, it is not evidence that has reached me and I note that the noble Lord shakes his head—so it seems that he does not have evidence of that, either. That theoretical possibility is not a good enough reason to do away with the protection which this provides.
	I turn now to the second part of the amendment. We have some doubts as to whether this is really necessary. As the noble Lord has made clear, the point is to allow the courts to approve a scheme of arrangement even if relevant classes have not been correctly constituted, provided—and this is an important condition—that the fairness of the scheme is not affected.
	Companies have been given quite a lot of guidance to make sure that the problem does not arise. The courts have issued a practice statement in 2002 reminding companies for example that, in case of doubt, they should take all reasonable steps to notify any person who may be affected by the scheme, and requiring them to identify any issues as to composition of classes at an early stage of the court procedure. Those steps should already prevent most of the problems of wasted time and effort that the noble Lord's amendments are targeted at. Having said that, we are not convinced that the amendment is necessary in practice, or that it would serve a useful purpose. But if the noble Lord will not press his amendment now we will discuss the question of the court's discretion further with interested parties to see if there are practical difficulties that such an amendment could address. That is as far as I can go in relation to that part of the amendment today.

Lord Sharman: My Lords, I am grateful for the reply given to this part of the debate by the noble and learned Lord the Attorney-General. In the light of his reply, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 677 [Disclosure of individual's residential address:non-disclosure certificate]:

Lord Sainsbury of Turville: moved Amendment No. 483:
	Page 333, line 32, leave out "non-disclosure certificates" and insert "protection from disclosure"
	On Question, amendment agreed to.
	Clause 678 [Requirement to identify persons to accept service of documents]:

Lord McKenzie of Luton: moved Amendment No. 483A:
	Page 333, line 35, leave out from "to" to end of line 37 and insert "register—
	"( ) particulars identifying every person resident in the United Kingdom authorised to accept service of documents on behalf of the company, or
	( ) a statement that there is no such person."

Lord McKenzie of Luton: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 483B, 483C, and 483D. Together the regulations to be made under this part of the Bill will determine the registration, reporting and disclosure requirements imposed by our company law on overseas companies, including the range of overseas companies to which the requirements apply and the offences for their breach. This part, together with the regulations to be made under it, replace the provisions made by Part 23 of the Companies Act 1985.
	Clause 678 imposes a disclosure requirement based on paragraph 3(e) of Schedule 21A to the Companies Act 1985 to disclose those persons resident in the UK authorised to accept service on the company's behalf. Amendment No. 483A makes clear that the clause does not impose a requirement on the overseas company to have anyone resident in the UK able to accept service on its behalf. If there are no such persons, the company must simply make a statement to that effect. Amendment No. 483B deletes Clause 679. The provision made by that clause is replaced by the new clause to be inserted by Amendment No. 483C.
	Where an overseas company has registered particulars with the registrar following the opening of a branch in the United Kingdom, the new clause will enable regulations to require the overseas company to give notice to the registrar if it subsequently closes that branch. These disclosures are a requirement of the 11th company law directive. In addition, an overseas company that has registered particulars in other circumstances specified by regulations under Clause 669 may be required by regulations made under the new clause to give notice to the registrar if those circumstances cease to obtain. The regulations will require the notice to be delivered to the registrar for the part of the United Kingdom in which the branch was registered and may set deadlines for sending the information to the registrar.
	Finally, Amendment No. 483D makes clear that the relocation of a branch from one part of the United Kingdom to another is to be treated as the closing of the branch in one part and the opening in another. Such provision is currently made by Section 695A(4) of the Companies Act 1985, which is being repealed. I beg to move.

On Question, amendment agreed to.
	Clause 679 [Duty to give notice of ceasing to have registrable presence in the UK]:

Lord McKenzie of Luton: moved Amendment No. 483B:
	Leave out Clause 679.
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendments Nos. 483C and 483D:
	After Clause 680, insert the following new clause—
	"DUTY TO GIVE NOTICE OF CEASING TO HAVE REGISTRABLE PRESENCE
	(1) The Secretary of State may make provision by regulations requiring an overseas company—
	(a) if it has registered particulars following the opening of a branch, in accordance with regulations under section 669(2)(a) or (b), to give notice to the registrar if it closes that branch;
	(b) if it has registered particulars in other circumstances, in accordance with regulations under section 669(2)(c), to give notice to the registrar if the circumstances that gave rise to the obligation to register particulars cease to obtain.
	(2) The regulations must provide for the notice to be given to the registrar for the part of the United Kingdom to which the original return of particulars was delivered.
	(3) The regulations may specify the period within which notice must be given.
	(4) Regulations under this section are subject to negative resolution procedure."
	After Clause 680, insert the following new clause—
	"APPLICATION OF PROVISIONS IN CASE OF RELOCATION OF BRANCH
	(1) For the purposes of this Part the relocation of a branch from one part of the United Kingdom to another counts as the closing of one branch and the opening of another.
	(2) The relocation of a branch within the same part of the United Kingdom does not."
	On Question, amendments agreed to.
	Clause 682 [The registrar's functions]:

Lord McKenzie of Luton: moved Amendment No. 483E:
	Page 334, line 37, leave out from "registrar" to second "and" in line 38 and insert—
	"(i) under the Companies Acts, and
	(ii) under the enactments listed in subsection (2)"

Lord McKenzie of Luton: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 483F, 483G, 487G and 528. These amendments relate to other enactments beyond the Companies Acts which confer functions on the registrar. Three of the amendments—Amendments Nos. 483E, 483F and 487G—make no real change of substance but are designed to introduce a little more clarity. At the moment the provision of the functions of the registrar in Clause 682, at the start of Part 26, refers generally to "other enactments" but does not list those enactments. In Clause 739, at the end of this part of the Bill, a list is provided, but it is arguably unclear what the effect is of the list in respect of some individual provisions. It is also not entirely clear whether the Bill or the existing enactments should apply to matters already covered by existing enactments. The amendments clarify the position.
	Amendments Nos. 483G and 528 do, however, make a change of substance to one of those enactments—the Limited Partnerships Act 1907. At the moment, enshrined in that Act is the provision that Companies House, when performing its functions, may only charge amounts varying from 2p to £2. The effect is that it is uneconomic for the registrar to offer certain optional services in respect of Limited Partnerships to customers, even where they have a need and are more than willing to pay the legitimate costs of the service being provided; other, mandatory, services have to be provided at a loss. This is creating difficulties in practice. In removing the statutory caps, the amendments will allow Companies House to develop services to meet customer demand and to charge for them in the normal way under Clause 684 of the Bill. I beg to move.

On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 483F:
	Page 335, line 3, at end insert—
	"(2) The enactments are—
	the Joint Stock Companies Acts;
	the Newspaper Libel and Registration Act 1881 (c. 60);
	the Limited Partnerships Act 1907 (c. 24);
	section 53 of the Industrial and Provident Societies Act 1965 (c. 12) or, for Northern Ireland, section 62 of the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.));
	the Insolvency Act 1986 (c. 45) or, for Northern Ireland, the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19));
	section 12 of the Statutory Water Companies Act 1991 (c. 58);
	sections 3, 4, 6, 63 and 64 of, and Schedule 1 to, the Housing Act 1996 (c. 52) or, for Northern Ireland, Articles 3 and 16 to 32 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15));
	sections 2, 4 and 26 of the Commonwealth Development Corporation Act 1999 (c. 20);
	Part 6 and section 366 of the Financial Services and Markets Act 2000 (c. 8);
	the Limited Liability Partnerships Act 2000 (c. 12);
	section 14 of the Insolvency Act 2000 (c. 39) or, for Northern Ireland, Article 11 of the Insolvency (Northern Ireland) Order 2002 (S.I. 2002/3152 (N.I. 6));
	section 121 of the Land Registration Act 2002 (c. 9);
	section 842 of this Act."
	On Question, amendment agreed to.
	Clause 684 [Fees payable to registrar]:

Lord McKenzie of Luton: moved Amendment No. 483G:
	Page 335, line 37, at end insert—
	"( ) The Limited Partnerships Act 1907 (c. 24) is amended as follows—
	(a) in section 16(1) (inspection of statements registered)—
	(i) omit the words ", and there shall be paid for such inspection such fees as may be appointed by the Board of Trade, not exceeding 5p for each inspection", and
	(ii) omit the words from "and there shall be paid for such certificate" to the end;
	(b) in section 17 (power to make rules)—
	(i) omit the words "(but as to fees with the concurrence of the Treasury)", and
	(ii) omit paragraph (a)."
	On Question, amendment agreed to.
	Clause 685 [Public notice of issue of certificate of incorporation]:

Lord McKenzie of Luton: moved Amendment No. 483H:
	Page 336, line 5, after "name" insert "and registered number"

Lord McKenzie of Luton: My Lords, in rising to move Amendment No. 483H, I shall also speak to Amendments Nos. 483J, 483K, 483L and 487F. Amendments Nos. 483H and 483K are identical to two which were tabled in Grand Committee by the noble Lord, Lord Sharman. His intention was to ensure that where the registrar gives notices about a particular company in, for example, the Gazette, the company should be identified not just by its name but by its registered number. I said at the time that I had a great deal of sympathy with the idea, but wanted first to check with Companies House that there would be no technical problems. I am pleased to say that we are now confident that the idea is workable in practice, and I am therefore putting the amendments that he suggested back to the House for agreement. I am grateful to the noble Lord for suggesting what is undoubtedly an improvement to the Bill.
	In looking at the drafting of these clauses, we have also unearthed a few small omissions and infelicities which the other amendments in this group correct. The Bill already includes provision in Clause 698 to ensure that public notice is given where certain documents are placed on the register. Amendment No. 487F ensures that similar notice must be given where such documents are removed; without this the story as seen by third parties could risk being misleading.
	Amendment No. 483L makes clear that the registrar need not give public notice before a company is actually incorporated. She will often receive documents in advance of, and in preparation for, the incorporation of a company, but it will be confusing to publicise these documents unless and until the company in fact exists and can be identified by a name and registered number.
	Finally, Amendment No. 483J is a minor drafting change which clarifies that the "Directive disclosure requirements" to which the clause refers, are the requirements as they apply in respect of a particular company at the time that documents relating to that company are received. I beg to move.

On Question, amendment agreed to.
	Clause 698 [Public notice of receipt of certain documents]:

Lord McKenzie of Luton: moved Amendments Nos. 483J to 483L:
	Page 341, line 33, after "document" insert "that, on receipt, is"
	Page 341, line 35, after "name" insert "and registered number"
	Page 341, line 36, at end insert—
	"( ) The registrar is not required to cause notice of the receipt of a document to be published before the date of incorporation of the company to which the document relates."
	On Question, amendments agreed to.
	Clause 699 [Documents subject to Directive disclosure requirements]:

Lord McKenzie of Luton: moved Amendment No. 483M:
	Page 342, line 26, at end insert—
	" 1. Any statement of capital and initial shareholdings."

Lord McKenzie of Luton: My Lords, in moving government Amendment No. 483M, I shall speak also to Amendments Nos. 483N to 483U.
	As noble Lords may be aware, the EC company law directives impose obligations on the registrar to publish various matters in the Gazette or an equivalent. The Bill changes the law on how companies are required to set out details of their share capital. This means that some "statements of capital" are subject to directive disclosure requirements. The additions to Clause 699 reflect that.
	These amendments are required to enable us to fulfil our obligations under EC law and I therefore trust that noble Lords will have no objections. I beg to move.

On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendments Nos. 483N to 483U:
	Page 342, line 34, at end insert "and the statement of capital accompanying it"
	Page 342, line 36, at end insert—
	" . Statement of capital accompanying order delivered under section 138 of that Act (order of court confirming reduction of capital)."
	Page 342, line 36, at end insert—
	" . Statement of capital accompanying return delivered under section 169 of that Act (return of details of company's purchase of own shares)."
	Page 342, line 36, at end insert—
	" . Statement of capital accompanying notice given under section 586 of this Act (notice by company of redenomination of shares)."
	Page 342, line 36, at end insert—
	" . Statement of capital accompanying notice given under section 588 of this Act (notice by company of reduction of capital in connection with redenomination of shares)."
	Page 342, line 37, at end insert "and the statement of capital accompanying it"
	Page 342, line 42, at end insert—
	"( ) Where a private company re-registers as a public company (see section 96)—
	(a) the last statement of capital relating to the company received by the registrar under any provision of the Companies Acts becomes subject to the Directive disclosure requirements, and
	(b) section 698 (public notice of receipt of certain documents) applies as if the statement had been received by the registrar when the re-registration takes effect."
	On Question, amendments agreed to.
	Clause 703 [Allocation of unique identifiers]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 484:
	Page 345, line 5, at end insert—
	"( ) is a statutory auditor of a company,"

Lord Hodgson of Astley Abbotts: My Lords, we now come to Clause 703, which concerns the allocation of unique identifiers. Amendment No. 484 would insert the statutory auditor into the list of people for whom the Secretary of State may make provision for the use of these identifiers.
	In Grand Committee, when I first raised this point, I said that it was something that the Institute of Chartered Accountants in England and Wales was anxious about, but I am afraid that the reply given by the noble Lord, Lord McKenzie, has done little to ease its nerves. He said:
	"We do not think there is the same interest in finding a list of all the companies whose accounts have been audited by a particular firm. Even if there were, there is probably less scope for confusion between firms than for confusion between individuals with similar names".—[Official Report, 28/3/06; col. GC 354.]
	I am afraid that I think that that response in large measure misses the point that we were trying to make. Therefore, we have again tabled the amendment, which seeks to include in the Bill an enabling power to introduce unique identifiers for auditors in addition to directors. We acknowledge that unique identifiers for directors are to be introduced primarily to enable the registrar to distinguish between directors of a similar name, given that they can now opt to provide service addresses. However, we believe that these unique identifiers will also enable directors to track information filed about them on the record. If that is the case, in our assumption unique identifiers would also enable auditors to monitor the public record to pick up instances where they are falsely claimed to be the auditor of a company.
	The accountancy trade press claimed in September 2005 that it had been notified of more than 100 incidences of auditor identity where auditors' names were erroneously used to legitimise bogus company accounts. Auditors will often become aware of such fraudulent filings only when approached by credit agencies to explain discrepancies in the accounts that they have allegedly audited; for example, where the accounts do not balance or subsidiaries do not exist. This could lead to damaged reputations for auditors and also to fraudulent filings going unnoticed, as it is currently not possible for auditors to check the register for filings in their name.
	We understand that in response to this problem Companies House has committed to improving its online filing security with electronic passwords and the introduction of PROOF—a protected online filing service that aims to reduce the possibility of fraud—in order to crack down on auditor identity theft, among other things. However, even if such systems were introduced for online filings by auditors, electronic security is not always able to stay one step ahead of the fraudsters. For example, we are told by the institute that it is aware of at least one case of a fraudulent record falsely claiming an individual as a director of a company that was filed using what is supposed to be secure electronic filing.
	According to the accountancy trade press, the Metropolitan Police have advised businesses not to rely on Companies House records when determining whether to issue goods on credit. We think that that is unacceptable, and so anything that we can do to improve the security of the register would be beneficial. Therefore, we argue that a system enabling auditors to see whether they have been fraudulently cited—akin to "Monitor", the monitoring system in place for companies, which results in an e-mail alert when filings are made—would be beneficial. At this stage, we seek only an enabling power by this amendment, and we propose that a regulatory impact assessment should be conducted before implementation to ensure that the potential benefits outweigh the costs.
	That was rejected by the Government in Committee on the basis that they,
	"do not think that allocating a number to every registered audit firm would be particularly helpful. It is unlikely to make it any easier to root out false claims that a particular firm has audited a company's accounts. The idea is that unique identifiers will be available to the public; they will not be like some authentication code or password used in electronic communications".—[Official Report, 28/3/06; col. GC 355-56.]
	However, as I have already mentioned, improvements in the security of online filing will always be vulnerable to fraud and so such security systems alone will not solve this issue. We think that monitoring should therefore be available, in addition to improvements to such security systems, and so it would not matter that such unique identifiers were available to the public.
	If the Government decide that unique identifiers should not be allocated to auditors, as our amendment proposes, we would, as a fallback position, suggest that the registrar be obliged to maintain the legal name of the audit firm as a searchable field on the record. Any audit firm could then, if it so wished, search Companies House records to gain a complete list of audits credited to it on the record and could cross-check for any areas of concern. I emphasise that at this stage we seek only to provide the ability for the Secretary of State to set up a unique system of identifiers for auditors, perhaps at some date in the future. I beg to move.

Lord McKenzie of Luton: My Lords, Clause 703 provides that the Secretary of State may make regulations so that a unique identifier can be allocated to anyone who is a director of a company, or a secretary of a public company, or the UK representative of an overseas company. It will help the system for protecting directors' home addresses and it will prevent third parties confusing different individuals with the same name or being confused by different names being used by a single director.
	We do not intend that unique identifiers should be allocated to statutory auditors for filing purposes; nor do we believe that it is justified. I listened carefully to the noble Lord's presentation on this matter. We are aware of the concern that the name of a registered audit firm might be fraudulently added to a company's accounts. Companies should not claim to have been audited by a particular firm if that is not the case. Such a false statement would be an offence, and we believe that this is a sufficient protection.
	Unlike in the case of directors' names, the problem is not one of confusing people with the same name. While there are many John Smiths, different audit firms do not share the same name. So if a company claims that it has been audited by, say, KPMG, it should be fairly easy to demonstrate that it has not without needing a unique identification number.
	I understand that firms may also be concerned to detect when a company takes their name in vain. This would not require allocation of a unique identification number but, rather, a facility to search on the basis of the audit firm's name on the register at Companies House. Indeed, if it had a unique identification number and that search facility were available, I suspect that the firm would almost certainly search the number as well as the name, so I do not see that the number adds anything. This could involve considerable expense and we would need to explore whether there was a problem on a scale to justify that expense. In any case, it would certainly not require primary legislation.
	I appreciate that there is concern about companies falsely claiming to have been audited by certain audit firms but, for the reasons that I have set out, I do not think that allocating unique identifiers to audit firms would do anything to resolve the problem.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for his reply, and he has clearly thought about this issue. I have two things to say. First, this was only a proposal for enabling legislation; we were not suggesting that it should happen. It would just give the Secretary of State another arrow in his quiver, so to speak. I think that the Minister was moving towards the fallback position of encouraging Companies House to have the legal name of the audit firm as a searchable record. We felt that that was a good fallback position and probably less complicated, and possibly less expensive, than a unique identifier.
	It would be helpful if the Minister could do all that he can to assuage the concerns of the audit profession by encouraging Companies House to introduce that searchable field facility, which presumably can be done at relatively little cost, and that would probably solve the problem. I think that we have probably gone about as far as we can on this matter and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McKenzie of Luton: moved Amendments Nos. 485 and 486:
	Page 345, line 6, at end insert "or"
	Page 345, line 9, leave out from second "section" to end of line 14.
	On Question, amendments agreed to.
	Clause 708 [Material not available for public inspection]:

Lord McKenzie of Luton: moved Amendment No. 487:
	Page 347, line 4, leave out paragraphs (a) and (b) and insert—
	"( ) protected information within section (Protected information: restriction on use or disclosure by registrar)(1) (directors' residential addresses: restriction on disclosure by registrar) or any corresponding provision of regulations under section 669 (overseas companies);"
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 487A:
	Page 347, line 19, at end insert—
	"( ) any application or other document delivered to the registrar under section (Application to registrar to make address unavailable for public inspection) (application to make address unavailable for public inspection) and any address in respect of which such an application is successful;"

Lord McKenzie of Luton: My Lords, I move Amendment No. 487A and speak to Amendment No. 487C.
	During our debate last week about the new scheme for protecting directors' residential addresses, my noble friend Lord Sainsbury explained that the Government intended to lay an amendment that would provide a power to make regulations specifying circumstances in which a director's—or indeed anyone's—address may be removed from the public record. These amendments fulfil that promise.
	Under the new scheme introduced by our earlier amendments, a new director's home address will be protected. But there will continue to be an historic record with the home addresses of most of those who are directors when the Bill comes into force—and indeed of those who have previously been directors.
	In the vast majority of cases, removing an address from the record held by Companies House would serve little purpose: once an address has been placed on the public record, it immediately becomes widely available through a myriad of secondary sources. What has once been published cannot be made secret. The genie cannot be put back in the bottle. Nevertheless, we do recognise that there may be circumstances in which the continued appearance of a person's address on the public record held by Companies House is undesirable, possibly because it puts those who live there at serious risk. In reality this is only likely if, for some reason, the address is not also easily available elsewhere from other sources. On the other hand, those at risk are not only directors. For example, former directors and the families of deceased directors may be equally at risk. Therefore the amendments provide power to specify who may apply for their address to be taken off the public record.
	We intend to consult over draft regulations later this year so that they can be brought into force at the same time as the provisions providing protection for directors' home addresses.
	I am grateful to the noble Lords, Lord Freeman, Lord Hodgson and Lord Jenkin, for their withdrawing Amendments Nos. 112 to 114 and 117. 1 hope they agree that this amendment meets their concerns. I beg to move.

On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 487B:
	Page 347, line 19, at end insert—
	"( ) any application or other document delivered to the registrar under section (Rectification of register on application) (application for rectification of register);"

Lord McKenzie of Luton: My Lords, I beg to move Amendment No. 487B and speak to Amendments Nos. 487D and 487E. These amendments relate to an issue which was raised by the noble Lord, Lord Hodgson, in Committee, based, as he mentioned, on suggestions from the Institute of Chartered Accountants in England and Wales.
	I am very grateful for the prompt this has given us to consider the issue and I hope the noble Lord will be pleased at the outcome. It is time for action.
	The question is the ability of the registrar to correct the register where clearly inaccurate, perhaps fraudulent, material has been placed on it. Under the Bill, it is not possible except under very narrow circumstances indeed for the registrar to remove material unless there has first been a court order to that effect.
	Our debate in Committee there was a good degree of consensus between us that a power for the registrar to remove material without court order could well be useful, but that if so there would need to be strict limits and controls built into it. Amendment No. 487E therefore introduces a power for the Secretary of State to make regulations to set out a regime on these lines.
	We have ensured that certain of the safeguards which were mentioned are set out in the primary legislation itself. For example, the new clause makes clear that the registrar must only remove information on application, and that the regulations will require the registrar to remove the material where the application is in order and there are no objections to it. In other words, we have minimised the scope for the registrar to exercise discretion or make judgments, particularly judgments between individuals with competing claims. If there is an objection, the remedy will be to apply to the court.
	But the clause does not attempt to set out all the new details of the new scheme. It is a power, and other elements of the system—for example the matters covered in broad terms under subsection (2)—will be set out in the secondary legislation. I can assure the House that there will be full and public consultation on the precise composition of the regulations before they are made.
	Finally, for completeness, I should mention Amendment No. 487B, which is consequential on the new scheme and ensures that an application under it does not in itself constitute a publishable document; and Amendment No. 487D, which removes what would now be a misleading statement in the Bill suggesting that the new non-court process did not exist. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I thank the noble Lord, Lord McKenzie, for bringing forward these amendments which meet our concerns. Amidst all the meetings of the Committee, he had the one of the most difficult lines to speak. His speaking notes said,
	"It is not inconceivable that it would be better for the information"—
	that is, the wrong information,
	"to remain, perhaps with an appropriate annotation of the warning that it is simply being deleted".—[Official Report, 30/3/06; col. GC 362.]
	That was a tough thing to try to defend and I am glad that he has moved.

On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendment No. 487C:
	After Clause 708, insert the following new clause—
	"APPLICATION TO REGISTRAR TO MAKE ADDRESS UNAVAILABLE FOR PUBLIC INSPECTION
	(1) The Secretary of State may make provision by regulations requiring the registrar, on application, to make an address on the register unavailable for public inspection.
	(2) The regulations may make provision as to—
	(a) who may make an application,
	(b) the grounds on which an application may be made,
	(c) the information to be included in and documents to accompany an application,
	(d) the notice to be given of an application and of its outcome, and
	(e) how an application is to be determined.
	(3) Provision under subsection (2)(e) may in particular—
	(a) confer a discretion on the registrar;
	(b) provide for a question to be referred to a person other than the registrar for the purposes of determining the application.
	(4) An application must specify the address to be removed from the register and indicate where on the register it is.
	(5) The regulations may provide—
	(a) that an address is not to be made unavailable for public inspection under this section unless replaced by a service address, and
	(b) that in such a case the application must specify a service address.
	(6) Regulations under this section are subject to affirmative resolution procedure."
	On Question, amendment agreed to.
	Clause 714 [Administrative removal of material from the register]:

Lord McKenzie of Luton: moved Amendment No. 487D:
	Page 350, leave out line 11.
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendments Nos. 487E and 487F:
	After Clause 714, insert the following new clause—
	"RECTIFICATION OF REGISTER ON APPLICATION TO REGISTRAR
	(1) The Secretary of State may make provision by regulations requiring the registrar, on application, to remove from the register material of a description specified in the regulations that—
	(a) derives from anything invalid or ineffective or that was done without the authority of the company, or
	(b) is factually inaccurate, or is derived from something that is factually inaccurate or forged.
	(2) The regulations may make provision as to—
	(a) who may make an application,
	(b) the information to be included in and documents to accompany an application,
	(c) the notice to be given of an application and of its outcome,
	(d) a period in which objections to an application may be made, and
	(e) how an application is to be determined.
	(3) An application must—
	(a) specify what is to be removed from the register and indicate where on the register it is, and
	(b) be accompanied by a statement that the material specified in the application complies with this section and the regulations.
	(4) If no objections are made to the application, the registrar may accept the statement as sufficient evidence that the material specified in the application should be removed from the register.
	(5) Where anything is removed from the register under this section the registration of which had legal consequences as mentioned in section 714(3), any person appearing to the court to have a sufficient interest may apply to the court for such consequential orders as appear just with respect to the legal effect (if any) to be accorded to the material by virtue of its having appeared on the register.
	(6) Regulations under this section are subject to affirmative resolution procedure."
	After Clause 716, insert the following new clause—
	"PUBLIC NOTICE OF REMOVAL OF CERTAIN MATERIAL FROM THE REGISTER
	(1) The registrar must cause to be published—
	(a) in the Gazette, or
	(b) in accordance with section 734 (alternative means of giving public notice),
	notice of the removal from the register of any document subject to the Directive disclosure requirements (see section 699) or of any material derived from such a document.
	(2) The notice must state the name and registered number of the company, the description of document and the date of receipt."
	On Question, amendments agreed to.
	Clause 739 [Application of Part to functions under other enactments]:

Lord McKenzie of Luton: moved Amendment No. 487G:
	Leave out Clause 739.
	On Question, amendment agreed to.
	Schedule 4 [Amendments of remaining provisions of the Companies Act 1985 relating to offences]:

Lord McKenzie of Luton: moved Amendment No. 488:
	Page 455, line 12, at end insert—
	:TITLE3:"Refusal of inspection of directors' statement and auditors' report relating to payment out of capital
	13A For section 175(7) of the Companies Act 1985 (c. 6) (refusal of inspection of directors' statement and auditors' report relating to payment out of capital) substitute—
	"(7) If an inspection under subsection (6) is refused, an offence is committed by—
	(a) the company, and
	(b) every officer of the company who is in default.
	(8) A person guilty of an offence under subsection (7) is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.".

Failure to give notice to registrar of application to court or to deliver copy of court order

13B For section 176(4) of the Companies Act 1985 (c. 6) (failure to give notice to registrar of application to court or to deliver copy of court order) substitute—
	"(4) If a company fails to comply with subsection (3), an offence is committed by—
	(a) the company, and
	(b) every officer of the company who is in default.
	(5) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale."."
	On Question, amendment agreed to.
	Clause 757 [Service of documents on directors, secretaries and others]:

Lord McKenzie of Luton: moved Amendment No. 489:
	Page 365, line 25, leave out paragraphs (a) and (b) and insert "any address for the time being shown as a current address in relation to that person in the part of the register available for public inspection"
	On Question, amendment agreed to.
	Schedule 6 [Communications by a company other than a traded company]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 490:
	Page 468, line 16, at end insert—
	"(2) Such agreement may be valid for a maximum of twelve months."

Lord Hodgson of Astley Abbotts: My Lords, I rise to rise to speak to Amendment No. 490 which concerns paragraph 9 of Part 4 of Schedule 6.
	Part 4 of Schedule 6 enables companies to communicate electronically with their shareholders where shareholders have given their consent. But there appears to be no time limit to the consent once given.
	The noble Lord, Lord Sharman, made clear during our debates that the electronic communication provisions enable companies to save a considerable sum of money. However, there is also the potential for problems caused by the failure of an individual member to understand properly what he or she is being asked to accept, and then being deemed to have agreed under paragraph 10.
	There was some confusion when this amendment was tabled in Grand Committee. It was originally tabled with an amendment that made it read "minimum" instead of "maximum". This was corrected before the Committee sat, but I fear too late for the changes to reach the Minister as his speaking note addressed the minimum rather than the maximum that we intended. The noble Lord, Lord Sainsbury, said,
	"I do not see the value of requiring a minimum period of commitment to receiving company documents by means of a website. Why should a member who agrees to use the web not be able to change his mind?".—[Official Report, 30/3/06; col. GC 378.]
	Absolutely: that is precisely the point. I am sorry that we caused confusion with our wrong tabling in the first place.
	We have therefore re-tabled this amendment for the same reasons that we did in Committee. The amendment seeks to cap any agreement between a company and a member to a maximum of 12 months. When this period expires the company would have to negotiate another agreement for the next year. We do not think that it is unreasonable to require companies to do this, given the savings they will make by using communication via a website in the event of member agreement. The main benefit from this will be to protect members who unwittingly agree to use the website for communication. They will then be given an opportunity to rescind their decision, while those who wish to continue with such an agreement can easily continue to do so. I beg to move.

Lord Sainsbury of Turville: My Lords, I am grateful to the noble Lord for tabling this amendment again so that I may now give him the right answer to address his concerns. When the noble Lord first laid his amendment at Grand Committee seeking to provide that agreements under paragraph 9 should be valid for a minimum of twelve months, we had thought the objective might be about providing a degree of certainty to businesses investing in web technology upgrades. However, the amendment clearly does the opposite in limiting the period of the agreement to a maximum of 12 months.
	I do not see the value in imposing a maximum period for agreements to receiving company documents by means of a website. This seems unduly burdensome—a case of minor silver-plating rather than gold-plating, but nevertheless burdensome—and an unnecessary hurdle when we are seeking to facilitate the use of electronic communications. The other point is that people are not locked into these agreements. If someone changes his or her mind, it is clear that he or she can withdraw at any time. In any event, members and debenture holders always have the right under Clause 762 to request that a document or information received otherwise than in hard copy form be sent to them in hard copy.
	Furthermore, a company must, under paragraph 13 of Schedule 6, notify an intended recipient of new documents posted on the website. If he has provided no e-mail address, then the company will, in effect, be obliged to send such notification in hard copy form by post, thus reminding the recipient of the website arrangement in place.
	We think that the communications clauses and schedules together provide adequate protection for members and other intended recipients who may not have easy access to the internet or to e-mail. I hope, therefore, that the noble Lord will not press his amendment.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for that response. I take at least half the blame, having got the wrong amendment down in the first place. I understand the wish we share to facilitate electronic communications as a means of saving money. That is a perfectly clear and sensible way to proceed. The noble Lord made a number of points—for example, that a member can withdraw at any time and that powers exist under Clause 762. I understand that. Is it likely that those facts will be shown on the website? Ordinary shareholders coming to the website will not be aware of the privileges and powers that exist for them under Clause 762. It would be helpful if the website stated, "If you want this in hard copy, you may apply for it". Is it part of the Government's thinking that if people wish to take advantage of such things, they will be encouraged to think of alternative ways?

Lord Sainsbury of Turville: My Lords, I would like to think that the Government had thought in that detail on this particular issue. I doubt if we have. I would have thought that companies would very much want to do that as a customer service and put that on the website.

Lord Hodgson of Astley Abbotts: My Lords, it would be helpful as a means of maintaining good and proper communication between the company and its shareholders. I am grateful to the Minister. We can take this no further and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 763 [Requirement of authentication]:

Lord Sainsbury of Turville: moved Amendment No. 490A:
	Leave out Clause 763 and insert the following new Clause—
	"REQUIREMENT OF AUTHENTICATION
	(1) This section applies in relation to the authentication of a document or information sent or supplied by a person to a company.
	(2) A document or information sent or supplied in hard copy form is sufficiently authenticated if it is signed by the person sending or supplying it.
	(3) A document or information sent or supplied in electronic form is sufficiently authenticated—
	(a) if the identity of the sender is confirmed in a manner specified by the company, or
	(b) where no such manner has been specified by the company, if the communication contains or is accompanied by a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.
	(4) Where a document or information is sent or supplied by one person on behalf of another, nothing in this section affects any provision of the company's articles under which the company may require reasonable evidence of the authority of the former to act on behalf of the latter."

Lord Sainsbury of Turville: My Lords, in moving Amendment No. 490A I shall speak also to Amendments Nos. 490B and 490C. These amendments seek to address the concerns raised by the noble Lords, Lord Hodgson and Lord Sharman, in Grand Committee, relating to two important aspects of the company communications provisions of the Bill.
	Amendment No. 490A deals with the authentication of documents by one person on another's behalf. It makes clear that companies can require proof of authority to act and, in doing so, puts beyond doubt that authentication of documents by one person on another's behalf is permitted. Amendment No. 490B deals with deemed delivery of website communications and makes additional provision for opting out of default rules about deemed delivery. Amendment No. 490C is a consequential amendment. Clause 765 is what currently deals with deemed delivery. We are bringing the rules on deemed delivery clearly within the company communications provisions of the Bill. I beg to move.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendment No. 490B:
	After Clause 763, insert the following new clause—
	"DEEMED DELIVERY OF DOCUMENTS AND INFORMATION
	(1) This section applies in relation to documents and information sent or supplied by a company.
	(2) Where—
	(a) the document or information is sent by post (whether in hard copy or electronic form) to an address in the United Kingdom, and
	(b) the company is able to show that it was properly addressed, prepaid and posted,
	it is deemed to have been received by the intended recipient 48 hours after it was posted.
	(3) Where—
	(a) the document or information is sent or supplied by electronic means, and
	(b) the company is able to show that it was properly addressed,
	it is deemed to have been received by the intended recipient 48 hours after it was sent.
	(4) Where the document or information is sent or supplied by means of a website, it is deemed to have been received by the intended recipient—
	(a) when the material was first made available on the website, or
	(b) if later, when the recipient received (or is deemed to have received) notice of the fact that the material was available on the website.
	(5) In calculating a period of hours for the purposes of this section, no account shall be taken of any part of a day that is not a working day.
	(6) This section has effect subject to—
	(a) any contrary provision of the Companies Acts;
	(b) in its application to documents or information sent or supplied by a company to its members, any contrary provision of the company's articles;
	(c) in its application to documents or information sent or supplied by a company to its debentures holders, any contrary provision in the instrument constituting the debentures;
	(d) in its application to documents or information sent or supplied by a company to a person otherwise than in his capacity as a member or debenture holder, any contrary provision in an agreement between the company and that person."
	On Question, amendment agreed to.
	Clause 765 [Deemed delivery of documents and information sent by post or electronic means]:

Lord Sainsbury of Turville: moved Amendment No. 490C:
	Leave out Clause 765.
	On Question, amendment agreed to.
	Clause 766 [Duty to notify registrar of certain appointments etc]:

Lord Sainsbury of Turville: moved Amendment No. 491:
	Page 368, line 40, leave out "Commissioners" and insert "Commission"
	On Question, amendment agreed to.
	Clause 767 [Offence of failure to give notice]:

Lord Sainsbury of Turville: moved Amendment No. 491A:
	Page 369, line 10, after "766" insert "within the period of 14 days after the appointment"

Lord Sainsbury of Turville: My Lords, this amendment introduces a specific deadline for complying with the requirement to notify the appointment of a judicial factor. It is needed so that the requirement is clear and can be enforced. I beg to move.

On Question, amendment agreed to.
	Clause 769 [Power of court to grant relief in certain cases]:

Baroness Noakes: moved Amendment No. 492:
	Page 370, line 14, leave out "reporting accountant" and insert "independent examiner"
	On Question, amendment agreed to.
	Clause 770 [Meaning of "undertaking" and related expressions]:

Lord Sainsbury of Turville: moved Amendment No. 493:
	Page 370, line 33, leave out paragraph (a).
	On Question, amendment agreed to.
	Clause 771 [Parent and subsidiary undertakings]:

Lord McKenzie of Luton: moved Amendment No. 494:
	Page 371, line 43, at end insert—
	"( ) In this section and that Schedule references to shares, in relation to an undertaking, are to allotted shares."
	On Question, amendment agreed to.
	Clause 774 [Dormant companies]:

Lord McKenzie of Luton: moved Amendment No. 495:
	Page 373, leave out line 17.
	On Question, amendment agreed to.
	Clause 778 [Minor definitions: general]:

Lord McKenzie of Luton: moved Amendment No. 495A:
	Page 374, line 42, at end insert—
	"( ) Until such date as may be appointed by order under section 884(2) for the definition in subsection (1) of "regulated market" to come into force, the following definition has effect for the purposes of the Companies Acts—
	""regulated market" has the same meaning as it has in Council Directive 93/22/EEC on investment services in the securities field;"."
	On Question, amendment agreed to.
	Schedule 9 [Index of defined expressions]:

Lord McKenzie of Luton: moved Amendments Nos. 496 to 506:
	Page 482, line 13, at end insert—
	
		
			  
			 "allotted shares and allotted share capital section (Companies having a share capital) (2) and (3)" 
		
	
	Page 482, line 17, column 2, leave out "section 363 of the 1985 Act" and insert "section (Duty to deliver annual returns)"
	Page 482, line 17, at end insert—
	
		
			  
			 "appropriate audit authority (in sections (Duty of auditor to notify appropriate audit authority), (Duty of company to notify appropriate audit authority) and 514) section (Meaning of "appropriate audit authority" and "major audit")(1)" 
		
	
	Page 487, line 5, at end insert—
	
		
			  
			 "issued shares and issued share capital section (Companies having a share capital) (2) and (3)" 
		
	
	Page 487, line 13, at end insert—
	
		
			  
			 "major audit (in sections (Duty of auditor to notify appropriate audit authority), and (Meaning of "appropriate audit authority" and "major audit")) section (Meaning of "appropriate audit authority" and "major audit")(2)" 
		
	
	Page 487, line 32, at end insert—
	
		
			  
			 "offer to the public (in Chapter 1 of Part 17) section 530 
		
	
	Page 488, line 21, column 2, leave out "477" and insert "(Appointment of auditors of private company: general)(2)"
	Page 489, leave out line 3.
	Page 489, leave out line 9 and insert—
	
		
			  
			 "protected information (in Chapter 8 of Part 10) section (Protected information)" 
		
	
	Page 489, line 23, at end insert—
	
		
			  
			 "—in Chapter 5 of Part 16 section (Meaning of "quoted company") (and section 363)" 
		
	
	Page 489, line 31, at end insert—
	
		
			  
			 "register of directors section 146 
			 register of directors' residential addresses section (Register of directors' residential addresses) 
			 register of secretaries (in case of public company) section 254" 
		
	
	On Question, amendments agreed to.

Baroness Noakes: moved Amendment No. 507:
	Page 490, line 14, column 1, leave out "reporting accountant" and insert "independent examiner"
	On Question, amendment agreed to.

Lord McKenzie of Luton: moved Amendments Nos. 508 to 511:
	Page 490, leave out line 15.
	Page 490, line 24, at end insert—
	
		
			  
			 "service address section 758" 
		
	
	Page 490, line 30, at end insert—
	
		
			  
			 "—in section 771 and Schedule 8 section 771(7)" 
		
	
	Page 490, line 30, at end insert—
	
		
			  
			 "share capital (company having a) section (Companies having a share capital) (1)" 
		
	
	On Question, amendments agreed to.
	Schedule 11 [Recognised professional qualifications]:

Baroness Noakes: moved Amendment No. 511A:
	Page 506, line 4, after "organisation)," insert "have provided or"

Baroness Noakes: My Lords, Amendment No. 511A proposes a small amendment to paragraph 9 in Schedule 11.
	In Grand Committee we debated the issue covered by this amendment; namely, the practical issues that arise in order that overseas audit experience may qualify as part of the requisite practical training for an auditor under Schedule 11. Paragraph 9 applies to all practical training, but I would like to tease out the significance of the paragraph by reference to overseas audit training. Put simply, paragraph 9 allows one of the UK recognised supervisory bodies to count overseas training by members of an overseas body if the UK body has approved them to carry out the training. In approving them, the UK body has to be satisfied, in the light of undertakings and the local supervision arrangements, that they will provide adequate training—that is, the paragraph is predicated on approval before the provision of the training.
	With my amendment the UK body has to be satisfied that the overseas persons,
	"have provided or will provide",
	adequate training, so approval may be granted in arrear.
	The practical issue that this amendment addresses is that it is not always possible to recognise the training on an ex ante basis. The Institute of Chartered Accountants in England and Wales has said that it receives a small number of applications each year for the approval for individuals who find that they need to rely on the overseas component of their qualification period to satisfy the rules. At present, the institute cannot do so because it cannot approve such training ex post.
	The amendment would not diminish the quality of training that an individual received before he was entitled to practise as an auditor, but it would make it easier for all relevant training to be validated. The alternative to this is a costly network of approved overseas training organisations set up by each RSB. I beg to move.

Lord McKenzie of Luton: My Lords, the eighth company law directive on auditing sets out clear requirements for practical training in Article 10. It requires that member states ensure that all training is carried out by persons,
	"providing adequate guarantees regarding their ability to provide practical training".
	This requirement is not new and reflects the practical training provisions of the 1984 eighth directive, which the 1989 Act implemented.
	Paragraph 9 of Schedule 11 reflects these requirements and, indeed, is a restatement of the provisions in the 1989 Act. It requires persons who wish to qualify as a statutory auditor to carry out at least three years' practical training under supervision of persons approved by the body offering the qualification.
	In practice, these requirements are met through the recognised qualifying bodies—those professional bodies that offer audit qualifications—operating a system of approved training offices. This means that those firms which are hosting practical training experience for audit students have provided guarantees to the qualifying body on the standard of training and supervision being provided. That is important. The practical training requirement for auditors is a vital part of their professional development, providing them with a range and depth of technical experience as well as developing their technical, commercial and ethical awareness skills. It is vital to the quality of the future stock of UK auditors that the practical training that auditors receive is structured, supervised and up to date.
	In considering whether a firm is suitable to provide adequate training, a number of criteria are considered, including the firm-wide procedures, the number of audit clients, the number of statutory auditors in the firm, the provision of training records, the setting of competencies and the number of assessments carried out on individuals. Although this amendment may be aimed at alleviating a practical difficulty for a handful of individuals it is not, in practice, the small matter that the noble Baroness, Lady Noakes, indicated. It runs a coach and horses through the UK qualifying system and would allow the retrospective approval of both overseas and UK practical training. That would fundamentally undermine the framework I have just described, which exists to ensure the quality of UK audit qualifications.
	I find it difficult to see how retrospective approval would operate in assessing the adequacy of firms' training and supervision arrangements, or their suitability for training individuals, since—after a period of time has elapsed—records may not have been kept, changes in audit clients will have taken place, firm-wide systems may have changed and staff will have left. That is likely to mean that adequate guarantees could not be assured, in the spirit of the directive. I understand the practical issue for those relatively few people operating overseas, but on balance this is not the right way to go. I urge the noble Baroness to withdraw the amendment.

Baroness Noakes: My Lords, I thank the Minister for his reply, for he will be aware that I know the amendment goes wide in order to deal with a particular issue. I shall consult the Institute of Chartered Accountants in England and Wales on the basis of his reply to see if it wishes to pursue a more narrowly drawn exception.
	I think that the Minister said it was difficult to do an ex ante approval; I suspect that it is not, in particular instances, for the recognised qualifying body to satisfy itself that a particular level of training has been provided. However, I shall ask the Institute of Chartered Accountants whether it wishes to pursue that issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 815 [Approval of overseas qualifications]:

Baroness Noakes: moved Amendment No. 511AA:
	Page 391, line 20, leave out leave out "(1)" and insert "(1)(a)"

Baroness Noakes: My Lords, in moving Amendment No. 511AA I shall also speak to the three other amendments in this group. With these amendments we return to an area we discussed in Committee, namely the exciting area of the reciprocal authorisation of auditors. I thank the Minister for his letter of 25 April following our Committee debate.
	The amendments address whether the Secretary of State's powers of recognition of overseas qualifications under Clause 815—which, we understand, would in practice be exercised by the Professional Oversight Board for Accountancy—would have to be restricted either to reciprocal treatment for the professional qualification as a whole or to the ability to audit. I understand that Article 44 of the eighth directive requires the Secretary of State to have regard to reciprocity only in respect of registered foreign auditors, not foreign qualifications. Why then does Clause 815(4)(b) indicate that the Secretary of State has to be satisfied in respect of professional qualification reciprocity?
	Our amendments would ensure that the oversight board concerned itself with the reciprocal treatment of auditors, not the much bigger territory of professional qualifications. Behind this lies a desire by the Institute of Chartered Accountants—and, doubtless, other relevant bodies—to see more recognition of overseas qualifications, because that is the route to greater overseas recognition of UK auditors. The larger professional accountancy firms, not just the big four, send some of their partners to overseas territories and will receive overseas-trained partners into the UK. That is what global businesses do; audit firms are no exception. If we do not recognise overseas qualifications because we make the test too hard, our own auditors will be unable to practise overseas and we will have to deny practising rights to overseas auditors.
	Alongside that is the issue of transparency and the speed with which the approval process works. Amendment No. 511D—to which the noble Lord, Lord Sharman, will speak in the next group—could provide greater transparency through the use of the Freedom of Information Act 2000. Yet speed will remain an issue, as I am advised that in the 17 years since the 1989 legislation was introduced those reciprocal recognition powers have been used only twice. Only two overseas bodies have been approved. Will the Minister say something about the need to improve the recognition process?
	If Clause 815 is passed unamended, the fear is that the reciprocity formulation will delay matters even further. There is a universe of non-EU overseas auditor qualifications extending considerably beyond Canada and Australia, which have the two that have already been approved. I beg to move.

Lord Sharman: My Lords, I rise to support the noble Baroness's amendment. It may interest the House to know that 11 years of my life have been spent practising overseas. That is difficult and almost impossible where there is no reciprocity. Some of my friends wonder how I ever managed to learn Dutch; you have to take tests in Dutch and Dutch law to get a licence in the Netherlands, because there is no reciprocity. That gives serious difficulty, as that language is almost impossible to learn—yet it was unnecessary for me to have a knowledge of the Dutch language to do my work. I was dealing exclusively there with international businesses that worked the whole time in English; indeed, all their Dutch staff demanded that they did so. This issue of reciprocity is critical, yet it is not moving. There is stalemate.

Lord McKenzie of Luton: My Lords, it may be helpful if I begin by explaining how Clause 815 works in practice. In doing so, I hope to address the concerns that the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman, have raised.
	The eighth company directive, on auditing, allows UK authorities to approve an auditor from a third country only if there is reciprocal approval in relation to auditors operating in that country. Clause 815 is drafted to meet that obligation and requires the Secretary of State to be satisfied as to the matters it sets out on the basis of whether there is comparable treatment.
	Clause 815 does not allow the Secretary of State to approve the qualifications of individual auditors from third countries on a case-by-case basis. It allows only the collective approval of qualifications. Under subsection (1)(a) he may collectively approve the qualifications of all auditors practising in a specified country, while under subsection (1)(b) he may collectively approve only specified qualifications held in the specified country. In either case, it is important to emphasise that subsection (3) requires the Secretary of State to be satisfied that the level of professional competence assured by foreign qualifications will be equivalent to that assured by UK audit qualifications.
	Subsection (1)(b) is essential to the recognition of auditors who hold a specific professional qualification from a foreign country that meets our standards, but where—this is particularly relevant for countries with a federal structure—other qualifications recognised under law there do not meet our standards. I hope this explanation clarifies that subsection (1)(a) and (b) represents two limbs of the same power. Indeed, having the two limbs should help the process of reciprocity. The exercise of the power under either limb needs to be compatible with the directive's requirements; the test of comparable treatment must thus apply to both limbs.
	The amendments proposed by the noble Baroness, Lady Noakes, would impose a different test for the limb in subsection (1)(b) that would not meet the directive's requirements. Furthermore, that would produce the odd result that the Secretary of State must apply different tests when exercising the same power—one if recognising all the qualifications in a country, but another if recognising only one particular qualification. I cannot see the logic in such a distinction.
	I have no data to hand on the specific issue of the speed at which reciprocity and recognition are going ahead, but in the light of the comments made it is certainly a matter that we will look into discussing urgently with officials, to try to understand what roadblocks there may be. I share the view that has been expressed from all Benches about their importance in a global marketplace, for I have spent time abroad in an accountancy firm myself—although not as an auditor—and understand the importance of having quality on a wide front.

Baroness Noakes: My Lords, I thank the Minister for that reply. He said that my amendment would mean that subsection (1)(b) would not meet the directive's requirements. Either I have not understood what the Institute of Chartered Accountants has said to me, or it has not understood the requirements. Clearly I will need to clarify that, so I will do so and return to this at Third Reading if necessary. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 511AB to 511AD not moved.]
	Clause 822 [Appointment of the Independent Supervisor]:

Lord Sharman: moved Amendment No. 511B:
	Page 394, line 6, at end insert—
	"( ) The order shall have the effect of making the body appointed under subsection (1) designated under section 5 of the Freedom of Information Act 2000 (c. 36) (further powers to designate public authorities)."

Lord Sharman: My Lords, I shall speak also to Amendment No. 511D. The purpose behind these amendments is to instil a deal of transparency into how the major accounting firms do their work. The public oversight body and its subsidiary organs, which consider audit quality in firms, do not publish individual reports. A composite report is published annually, which deals with the industry overall. It is averaged, because it takes the larger firms, the smaller firms and the medium-sized firms. Although there is some segregation, it is not a particularly useful document.
	In the combined code, recent amendments have introduced requirements for audit committees to take a view on the effectiveness of the external audit process. They have always taken a view on the effectiveness of the internal audit process. In so doing, it has been relatively easy for them to perform a review themselves or to go outside the body and commission a review from a third party. However, they have no means to access detailed information about the performance of their external auditors in the work of auditing. It is extremely important, from the point of view of the public interest, that such information be available. That is the purpose of Amendment No. 511D. The purpose of Amendment No. 511B is to create a level playing field for the work of the independent supervisor over the Comptroller and Auditor-General. I beg to move.

Baroness Noakes: My Lords, I support the amendments, to which our names are attached. The noble Lord, Lord Sharman, has explained the specific reasons why it would be right for the Freedom of Information Act to apply to the public oversight board and, by extension, to the independent supervisor. There is also a wider reason, which is that when bodies are set up to carry out public functions, it is right and proper that the equivalent freedom of information requirements apply to them and are not avoided by public functions being transferred to bodies in the way set out in the Bill.

Lord McKenzie of Luton: My Lords, the Professional Oversight Board is an operating body of the Financial Reporting Council and is currently responsible for exercising the Secretary of State's functions in relation to auditors delegated to it under the 1989 Act. The Government expect that the role of independent supervisor of the Comptroller and Auditor-General will also be carried out by the Professional Oversight Board. The oversight board is accountable—and will report annually—to the Secretary of State and, through him, to Parliament for the exercise of all functions that may be delegated to it under powers in this part and corresponding powers in existing legislation.
	As I said in Committee, the Government recognise that this is an important issue, to which I am willing to give careful consideration. However, the Bill should not determine the Professional Oversight Board's status under the Freedom of Information Act.
	The inclusion of the oversight board in the provisions of the Freedom of Information Act is an issue that requires careful consideration and public consultation, for a number of important reasons. As noble Lords have pointed out, the activities of the oversight board go beyond the scope of this part of the Bill and any delegation order under it. Specifically, the oversight board oversees the activity and publishes the annual report of the Audit Inspection Unit—a new independent inspection unit that reports to the oversight board and which was set up following the Government's review of the regulatory regime of the accountancy profession in 2003.
	In Committee, the noble Baroness argued that those reports should be made public in the interests of transparency and decision-usefulness for audit committees. That is a subject worthy of debate and I have listened carefully to the noble Baroness and to the noble Lord, Lord Sharman. However, there are also very good reasons why the steering group that oversaw the implementation of recommendations from the review of the regulatory regime of the accountancy profession felt that publication of the AIU's reports on individual audits or auditors would be detrimental to the inspection programme—which is, after all, designed to improve firms' practices and internal processes through constructive dialogue, rather than an adversarial approach—and therefore not in the public interest. There are potentially significant drawbacks to extending the level of public reporting by the AIU to include reporting on individual firms and audits, and those drawbacks must be balanced against the calls for more transparency.
	We run the risk of reports becoming more legalistic, as the burden of proof required before matters can be made public would arguably increase. The inspection process would become more adversarial: focused on arguments about the finer points of what amounts to compliance, rather than a constructive dialogue focused on best practice. Ultimately there is a real risk that such an approach would drive the inspection regime towards a tick-box approach to compliance. That would be undesirable and could have a detrimental effect on both transparency and audit quality.
	Furthermore, as a result, there is a risk that public reports might become anodyne and thus of little or no real value to audit committees. I guess that that is a bit like engagement letters, which we discussed the other night.

Lord Sharman: My Lords, I remind the Minister that I offered to give him an engagement letter. I can tell him that I have it with me.

Lord McKenzie of Luton: My Lords, I look forward to receiving that and I thank the noble Lord in advance. I shall repair to the bar immediately to peruse it.
	There is also the risk that audit firms will focus more on challenging points rather than focusing their efforts where we want them to, addressing underlying quality issues.
	As I said, there is an important debate to be had on this, and the oversight board is currently reviewing its approach to publication, having regard to practices in other countries with a view to consulting more widely later this year. In any case, the amendments before us would not necessarily result in publication of individual reports. There are a number of exceptions under the Freedom of Information Act that would probably apply with respect to much of the information contained in AIU reports.
	As I said in Committee, the Government are currently building up evidence on how freedom of information has impacted on the bodies that meet the existing criteria, with a view to extending designation to further bodies. We believe that that is the appropriate context in which to consider the position of the Professional Oversight Board with respect to inclusion within the provisions of the Freedom of Information Act. That should, however, remain completely separate to the passage of the Bill. As I said, the oversight board is reviewing its approach to publication of AIU reports with a view to consulting more widely later this year.
	I hope that, on the basis of what I have said, the noble Lord will feel able not to press the amendment. This is an important issue; there is a way to address it; but it is not the manner suggested by the amendments.

Lord Sharman: My Lords, I am quite willing to accept that the solution may not be as the amendments are framed. I was more than a little astonished by the Minister arguing that transparency, when it affects the detail of how an auditor is performing, is a bad thing. I believe that transparency is the only way in which any semblance of confidence can be restored, where it has been lost. We must face up to the fact that there have been significant questions about the quality of auditing in this country. The way to put it right is to be transparent about how good or bad it is. I will, in a moment, withdraw the amendment, but I ask that we look in some detail and with some urgency at how the purpose behind the amendments can be achieved.

Lord McKenzie of Luton: My Lords, before the noble Lord withdraws the amendment, yes, we should look with some urgency at this. A process is under way already, but I am happy to engage in discussions outside the Chamber to see what more might be done. On the issue of transparency, I entirely agree with transparency for the profession as a whole and about thematic issues that face the profession. That is absolutely right. The question is the balance of transparency versus reports on individual firms and what that may entail. That issue needs particular consideration.

Lord Sharman: My Lords, I thank the Minister for that and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes: moved Amendment No. 511C:
	Page 394, line 21, at end insert—
	"( ) An order under this section must include requirements relating to—
	(a) the preparation and publication of financial statements of the appointed body, and
	(b) the audit of those statements (save that an order may not require or permit a person mentioned in section 820(1) to be appointed auditor for that purpose)."

Baroness Noakes: My Lords, with a little luck, this will be my last appearance at this Report stage, but I shall be back. This small amendment builds on a slightly different amendment discussed in Grand Committee. It concerns the accounts of the independent supervisor and the audit of those accounts. Amendment No. 511C states merely that the order appointing the independent supervisor must include requirements on accounts and audit. In Grand Committee, the Minister said that the order under Clause 822 was the right place for the accounts requirements rather than a special clause. We are inclined to agree with that, but we find it a little strange that, on this fundamental area of financial accountability, the Bill is completely silent. It is unusual to find a body being created without any explicit financial accountability arrangements. Paragraph (a) of my amendment states that an order under Clause 822 must include a requirement relating to the preparation and publication of financial statements.
	Paragraph (b) of my amendment states that the financial statements have to be audited—I do not think that there will be any policy disagreement on this—but, importantly, it rules out audit by any of the auditors general. I hope that there will be no policy disagreement on that either. This was included in the amendment that I tabled for Grand Committee, but we somehow failed, probably due to fatigue, to debate the point, so I have included it again in this amendment. I beg to move.

Lord McKenzie of Luton: My Lords, I think we have agreement on what we want the outcome of this to be, but perhaps not on the process for achieving it. I listened very carefully to the noble Baroness's arguments in favour of including a requirement to prepare, audit and publish financial statements of the independent supervisor, but I reiterate my view that such a provision is unnecessary. I have already made a commitment, in the debate in Committee, to the effect that such requirements will be included in any order made under this clause. Clause 822(5) makes it clear that these requirements can be included in the order. I am happy to confirm that the Secretary of State will do so. It would be inconceivable for an auditor general to be appointed the auditor of its independent supervisor. I hope that I have given in as clear a way as I can the assurances that the noble Baroness seeks and that she will not press the amendment.

Baroness Noakes: My Lords, the noble Lord tempts me. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 846 [Delegation of the Secretary of State's functions]:
	[Amendment No. 511D not moved.]
	Clause 865 [Institutional investors: information about exercise of voting rights]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 512:
	Leave out Clause 865.

Lord Hodgson of Astley Abbotts: My Lords, this amendment is extremely simple. It returns us to an issue which we spent some time debating in Grand Committee. We began then by tabling a series of probing amendments to see whether there was any logic or any economic or commercial justification for the Government's policy. There appeared to be none. So we also tabled a clause stand part debate and received no clearer answer then. Accordingly, we seek now, as we sought then, the removal of this reserve power for the Treasury to make provision by regulation to require institutions to provide specified information about the exercise or non-exercise of voting rights attached to their shares.
	We agree that there should be full disclosure of how voting rights are exercised by financial institutions for those on whose behalf they invest, but we do not see any reason why it should be compulsory for disclosure to be made to the public at large. Nor do we agree that the heavy-handed approach proposed in the Bill is the best way to achieve this.
	I shall not repeat this evening the facts and figures that I gave in Grand Committee, but it is clear that there is a growing move to voluntary disclosure in any case, which the passing of this clause may slow down. Included in our concerns are a number of technical problems relating to the practical implications of the Government's proposal. The Government have failed so far to provide any explanation of how these would be overcome. Instead, the noble Lord hid behind these conventional words:
	"I can reassure him that before a statutory disclosure regime was introduced there would be full consultation and a cost/benefit analysis to ensure that any final regime was proportionate and properly targeted".—[Official Report, 25/4/2006; col. GC80.]
	From the number of representations on this clause that we have received, and from the diversity of backgrounds from which they have come, I suggest that we already have a clear idea of what the result of that consultation would be; that is, to scrap this proposal. I hope that the Minister has thought seriously about the matter since Committee and will now take the opportunity to do so. I beg to move.

Lord Sharman: My Lords, I support the amendment, principally for the reason that the voluntary scheme which is operating is beginning to work quite well. If we can give the voluntary scheme time to work, it will be unnecessary to have this reserve power.

Lord Sainsbury of Turville: My Lords, I am rather conscious of the fact that on the previous occasion when we debated shareholders' engagement, we were all saying exactly the reverse. Members opposite were saying, "We can't just wait for a voluntary scheme. We've got to actually go in there and have a scheme". We were arguing the reverse.

Lord Hodgson of Astley Abbotts: My Lords, the Minister really cannot get away with that. We are talking here not about disclosure to participators, but about disclosure to the public at large. As I said when I spoke, we have no problem with the institutions having to disclose how they are voting for people on whose behalf they are investing—that is the golden thread. We are talking about disclosure to the public at large, which is quite a different issue. The Minister really must try not to confuse them.

Lord Sainsbury of Turville: No, my Lords, the point that I was making was about people's enthusiasm for a voluntary scheme as opposed to the taking of powers. On the previous occasion, the noble Lord was immensely unenthusiastic about the voluntary scheme, even though it seemed to be working, and went very hard on the need for regulations. It is nothing to do with the issue involved; it is just the general approach.
	Clause 865 confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise, or non-exercise, of their voting rights. I am pleased that the noble Lord, Lord Hodgson, accepted in Committee that,
	"shareholders whose shares are held through nominees or are managed on their behalf are entitled to know what is being done with the shares that they own".
	Therefore, I am concerned that, in spite of this shared agreement about the rights of shareholders to this information, noble Lords have proposed the removal of this clause. However, I understand that they have concerns about the taking of a broad power, and I would like to allay their specific concerns.
	Noble Lords were concerned, first, about the taking of a power without showing,
	"that the financial costs and administrative complexities of the clause have been fully considered and that it has a commercially logical foundation".—[Official Report, 25/4/06; col. GC69.]
	Noble Lords are quite right that the clause does not specify exactly how the power would be exercised, and therefore, if it is exercised, what the costs would be. It is precisely to address these complexities that we are proposing a broad and flexible enabling power.
	Taking a power of this scope and flexibility of course requires an assurance that it will be exercised proportionately and appropriately. We have given this assurance. We have been very clear that the exercise of the power will be subject to further consultation as well as a cost/benefit analysis. If the Government were to exercise the power, they would shape the provisions to make sure that the regime is underpinned by the commercially logical foundation identified and fully justified on the balance of costs and benefits.
	Noble Lords also commented on the importance of allowing time to see whether the voluntary approach will continue to yield more disclosure. I absolutely agree with this. This is why we are introducing an enabling power. The approach we adopt will take the evolution of market practice into account. We would like to see best practice continue to drive this improvement on its own. As noble Lords correctly noted in Committee, there is a growing trend domestically and internationally towards disclosure of voting. The mere existence of the enabling power may encourage institutional investors to adopt best practice, but if some institutional investors are reticent, it is right to consider the use of this power to bring the laggards up to the level of the better performers.
	Noble Lords also expressed concern that mandatory disclosure of voting information could result in the production of mechanistic disclosures, including,
	"pages of statistics and tables, which could be meaningless without further analysis".
	The Government have said they would introduce a mandatory disclosure regime only where the benefits exceeded the costs. I can assure noble Lords that this analysis would consider the value of the information to be disclosed. The increasing trend towards voluntary disclosures suggests that more institutional investors recognise their clients' right to this information and that its disclosure is of benefit to clients.
	More fundamentally, noble Lords asserted that they were by no means convinced that the clause,
	"in any way meets the Government's strategic objectives set out in the Bill".—[Official Report, 25/4/06; col. GC79.]
	A key objective is enhancing shareholder engagement. A power to compel institutional investors to disclose to their end beneficiaries how they vote on their behalf is surely crucial to enhancing shareholder engagement, particularly if the institutional investors fail to provide appropriate levels of transparency on their own. I am sure noble Lords want institutional investors to be accountable both for governance decisions they make on behalf of end beneficiaries and for managing transparently the conflicts of interest to which these decisions might give rise.
	If noble Lords believe that individual investors are entitled to know what is being done with the shares that they beneficially own, and that this disclosure is beneficial, then they should support this clause. Moreover, this clause should also be supported by those who argue for a voluntary disclosure regime. The Government are committed to examining this and, if it is the better solution, it will be preferred to a mandatory regime. The choice with this clause is not between voluntary and mandatory approaches, but whether the Government should have effective backup. In the event that the voluntary approach does not deliver, we would have no lever to address the problem. The commitment to consultation, rigorous cost/benefit analysis and affirmative approval of any regulations provides the assurance that any use of this power would be proportionate. I therefore hope that the noble Lord will agree to withdraw the amendment.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful for that very considered response. I am also grateful to the noble Lord, Lord Sharman, for his support. Obviously I have listened carefully to the Minister. The noble Lord, Lord Sharman, made it clear that we are dealing with the evolution of voluntary disclosure. I do not flatter the Minister when I say he has had a distinguished business commercial career outside the House. He therefore understands the push and the pull underlying this clause. The concern is that once you hand this power to his successors, it will not always necessarily be used as sensibly as I am sure the Minister would use it. It is very widely drawn and extensive in the powers it gives to his successors; that is one of our concerns. We have no problem with enhancing shareholder engagement. Indeed, our discussions on Part 9 were exactly about that. I think we need to talk to people outside and read carefully what the Minister has said. We need to see whether his remarks carry any weight outside and to consult further. But for tonight, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 866 [Disclosure of information under the Enterprise Act 2002]:

Lord Sainsbury of Turville: moved Amendment No. 512A:
	Page 426, line 17, leave out paragraphs (a) and (b) and insert—
	"( ) for the purposes of, or in connection with, prescribed civil proceedings (including prospective proceedings) in the United Kingdom, or
	( ) for the purposes of obtaining legal advice in relation to such proceedings, or
	( ) otherwise for the purposes of establishing, enforcing or defending legal rights that are or may be the subject of such proceedings."

Lord Sainsbury of Turville: My Lords, in moving Amendment No. 512A, I shall speak also to Amendment No. 512B, both of which amend Clause 866. They respond to very useful proposals put forward by the noble Lords, Lord Hodgson and Lord De Mauley, in Committee. I agreed to consider these as I thought the principles behind the proposals served positively to strengthen the clause. My officials have discussed the thinking further with the CBI and I hope the noble Lords will agree that the way we have drafted the amendments meets their points.
	Amendment No. 512A makes it clear that information can be disclosed for the purpose of preliminary steps to enforcing rights and for alternative ways of resolving the dispute other than through commencing civil proceedings. For example, it can be used to enable use of information for investigation, the issuing of "cease and desist" letters to the person said to be committing a breach of intellectual property rights, or for an alternative dispute resolution procedure. There are benefits to both business and consumers in making it clear that information can be disclosed for such preliminary steps. For example, a holder of intellectual property rights might need information in relation to previous breaches by a trader to show a pattern of behaviour. A consumer might need information from a test report showing that a product is unsafe in pursuing a claim with a trader or through an ombudsman scheme.
	Amendment No. 512B allows information disclosed under this clause to be used for all purposes covered by the clause. For example, this will make it unnecessary for an individual or business to go back to the public authority which disclosed the information to seek further permission if he intends to start proceedings. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister. This issue caused a lot of concern. It is a technical area but, as I understand it, the amendments brought forward here have put the issue to bed.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendment No. 512B:
	Page 426, line 43, leave out "that for which it is disclosed" and insert "those specified in subsection (1)"
	On Question, amendment agreed to.
	Schedule 15 [Repeals]:

Lord Sainsbury of Turville: moved Amendment No. 512C:
	Page 513, line 14, column 2, leave out from beginning to end of line 15 and insert "Sections 1 to 88."

Lord Sainsbury of Turville: My Lords, in moving Amendment No. 512C, I shall speak also to the long series of amendments grouped with it: Amendments Nos. 512D to 527, 529 and 530, which amend Schedule 15—the repeals schedule—and Amendment No. 532, which amends Clause 884. The changes to Schedule 15 provided for by the first two groups of amendments are consequential to amendments made during consideration on Report. The final amendment in this group, Amendment No. 532, ensures that the repeals of enactments specified in Schedule 15 will occur at the time when commencement orders bring the various provisions of the Bill into force, rather than on Royal Assent. I beg to move.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 512D to 530:
	Page 513, line 19, at end insert—
	
		
			  
			  "In section 122(1)—(a)   paragraphs (a) to (d);(b)   the words "consolidated, divided, converted, sub-divided," and ", or the stock reconverted"." 
		
	
	Page 513, leave out line 45 and insert—
	"Sections 198 to 262A"
	Page 513, leave out lines 47 and 48 and insert—
	"Sections 282 to 361."
	Page 514, line 2, column 2, leave out from beginning to end of line 3 and insert—
	"Sections 363 to 394A."
	Page 514, line 7, at end insert- "Section 430A(4)."
	Page 514, leave out lines 42 to 45 and insert—
	"Sections 680 to 720."
	Page 514, leave out line 49.
	Page 514, line 49, at end insert—
	"Section 735B."
	Page 515, line 8, at end insert ", "prospectus issued generally""
	Page 515, leave out lines 12 and 13 and insert—
	"In Schedule 2, Part 2."
	Page 515, line 14, leave out "4" and insert "3"
	Page 515, leave out lines 34 and 35 and insert—
	"Sections 92 to 107."
	Page 515, line 43, after "(4)" insert ", (6)"
	Page 515, leave out lines 47 and 48 and insert—
	"Sections 133 and 134."
	Page 516, line 2, column 2, leave out "and 11 to 15 and 17 to 24" insert ", 11, 12 to 15, 18(7), 19 to 21, 23 and 24."
	Page 516, line 24, column 2, leave out "Part 9" and insert—
	"Sections 139 and 140."
	Page 516, column 2, leave out lines 29 and 30 and insert—
	"Sections 7 to 10."
	Page 516, line 35, leave out "6" and insert "5"
	Page 518, line 6, at end insert—
	"In Schedule 2, paragraphs 11 to 15."
	Page 518, line 20, at end insert—
	
		
			  
			 "Limited PartnershipsAct 1907 (c. 24) In section 16(1)(a)   the words ", and there shall be paid for such inspection such fees as may be appointed by the Board of Trade, not exceeding 5p for each inspection";(b)   the words from "and there shall be paid for such certificate" to the end.In section 17(a)   the words "(but as to fees with the concurrence of the Treasury)";(b)   paragraph (a)." 
		
	
	Page 518, line 22, leave out "Part 2" and insert—
	"Sections 24 to 54. Schedules 11 to 13."
	Page 518, line 22, at end insert—
	
		
			  
			 "Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27) Sections 1 to 6.In Schedule 2, Part 1." 
		
	
	On Question, amendments agreed to.

Lord Sainsbury of Turville: moved Amendment No. 531:
	After Clause 881, insert the following new clause—
	"CONTINUITY OF THE LAW
	(1) This section applies where any provision of this Act re-enacts (with or without modification) an enactment repealed by this Act.
	(2) The repeal and re-enactment does not affect the continuity of the law.
	(3) Anything done (including subordinate legislation made), or having effect as if done, under or for the purposes of the repealed provision that could have been done under or for the purposes of the corresponding provision of this Act, if in force or effective immediately before the commencement of that corresponding provision, has effect thereafter as if done under or for the purposes of that corresponding provision.
	(4) Any reference (express or implied) in this Act or any other enactment, instrument or document to a provision of this Act shall be construed (so far as the context permits) as including, as respects times, circumstances or purposes in relation to which the corresponding repealed provision had effect, a reference to that corresponding provision.
	(5) Any reference (express or implied) in any enactment, instrument or document to a repealed provision shall be construed (so far as the context permits), as respects times, circumstances and purposes in relation to which the corresponding provision of this Act has effect, as being or (according to the context) including a reference to the corresponding provision of this Act.
	(6) This section has effect subject to any specific transitional provision or saving contained in this Act.
	(7) References in this section to this Act include subordinate legislation made under this Act.
	(8) In this section "subordinate legislation" has the same meaning as in the Interpretation Act 1978 (c. 30)."

Lord Sainsbury of Turville: My Lords, this amendment introduces a new clause to follow Clause 881. It seeks to include a provision to ensure that things done in reliance on these provisions in the Companies Act 1985, which are repealed and replaced by the Bill, will continue to be legally effective.
	Articles of association, company resolutions and contracts are all likely to refer to provisions of the Companies Act or to rely for their effect on the way in which those provisions work. Except where we intend a change, those articles, resolutions and contracts should continue to have effect, not only with old references converted into new but also with their legal effect capable of continuing, despite verbal differences between the old and the new.
	This new clause applies automatically in all cases in which it is capable of applying. It is in addition to any more specific transitional provisions which may be included in the commencement orders by use of the power in the preceding Clause 881. It does not purport to be wholly comprehensive, but where it does apply it will avoid the need for equivalent provision to be made by possibly more than one order.
	The same amendment was brought forward in Grand Committee, but our debate was coloured there by what I suspect may have been slightly crossed purposes. I hope, with the explanation I have provided today, we can agree the provision. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I am not quite as happy as the Minister thought I might be. What we are concerned about is the question of the meshing of this piece of legislation with what went before. The Law Society still has some concerns about it. I wonder if it would be possible for the Minister, the Bill team and the Government to consider whether we could have a schedule to the Bill which would consist of a table identifying which provisions in the Bill correspond to provisions being repealed for the purposes of this clause.
	There is certainly a concern which I explained on our last day in Committee about how these all mesh together. I said then that the new clause appears to apply only when existing provisions are re-enacted with or without modification. It does not appear to cover the situation where an existing provision is simply repealed without being re-enacted. I also think some of these concerns continue to persist in the world at large. We share the Government's view that we are trying to make company law comprehensible and accessible. Some practitioners and the Law Society feel that a schedule with a table would help bring the whole thing together. I wonder if the Minister could comment further on the possibility of some such arrangement being made available.

Lord Sainsbury of Turville: My Lords, there are two parts to this: the general bit and then the transitional arrangements to cover any cases where one needs to give specific instructions as to what the transition should be. I would be delighted to write to the noble Lord with a more specific answer to his suggestion and, if necessary, hold further technical discussions.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for that. This is a practitioner issue and it would be wrong for me to pretend, even after three days on Report and 13 days in Committee, that I have this Bill completely focused in my mind. If the Law Society is having difficulty in seeing how all this fits together, I think there is an issue here that we could all usefully address in the interests of UK plc. I hope the Minister will be able to ask the Bill team to consider this and maybe talk to the Law Society and practitioners. It would help the Bill, which is what we are trying to achieve in this elaborate process.

On Question, amendment agreed to.
	Clause 884 [Commencement]:

Lord Sainsbury of Turville: moved Amendment No. 532:
	Page 432, line 14, after "provisions)," insert "except section 880 and Schedule 15 (repeals),"
	On Question, amendment agreed to.

National Assembly for Wales (Transfer of Functions) Order 2006

Lord Evans of Temple Guiting: rose to move, That the draft order laid before the House on 24 April be approved [25th Report from the Joint Committee].

Lord Evans of Temple Guiting: My Lords, the draft National Assembly for Wales (Transfer of Functions) Order 2006 must be made by Order in Council following approval of the draft order by both Houses of Parliament. Section 22 of the Government of Wales Act 1998 enables a function of a Minister of the Crown to be transferred to the National Assembly for Wales upon receipt of this approval. That is why this short and, I hope, uncontentious order is before the House today. The Wales Office has worked closely with all relevant departments: the Department for Communities and Local Government—formerly the Office of the Deputy Prime Minister—the Department for Education and Skills and of course the National Assembly for Wales. Policy on these issues has been agreed by all parties in the Assembly.
	Turning to the draft order, two transfers will be effected or facilitated by the House approving this order. First, the most significant transfer to be effected by this order is the transfer to the Assembly of those fire safety functions which at present remain with the UK Government. The case for this transfer has its genesis in the making of the Regulatory Reform (Fire Safety) Order 2005, which is a reform of all the current fire safety law that is contained in more than 100 separate pieces of fire safety legislation. The main substance of the RRO comes into force on 1 October 2006. The main emphasis of the reform will be towards fire prevention and a regime of fire risk assessment by the person responsible for their non-domestic premises, to identify, mitigate or remove any risk from fire to persons in or around the premises. The Fire and Rescue Services Act 2004 came into force in Wales in November 2004. Matters relating to fire and rescue authorities in Wales were conferred on the National Assembly for Wales by that Act. This transfer of functions order is consistent with that policy of devolution and will enable the National Assembly for Wales to act across the range of the regulatory reform order provisions; and thus give the National Assembly for Wales a comparable level of responsibility as will exist in England from 1 October 2006.
	The other function included in this omnibus order is the transfer of powers under Section 1 of the Education (Fees and Awards) Act 1983. This section currently enables the Secretary of State for Education and Skills to make regulations that allow certain institutions to charge higher fees to those students who cannot demonstrate a connection with the UK than to those who can. This change will enable the Assembly to make regulations regarding the charging of fees at universities and further education establishments in relation to Wales. The functions under Section 2 of the 1983 Act were previously devolved to the Assembly in 1999 and make similar provision for post-compulsory education awards by local education authorities. This split in responsibilities has made it increasingly complex to draft regulations under the 1983 Act, with some elements being made by the Assembly and others by the Secretary of State. Given the devolution of student support policy to the Assembly from the 2006–07 academic year, it is no longer appropriate for these powers to remain with the Secretary of State. The transfer will facilitate the creation of future policy and improve accountability for both the Assembly and the DfES. I commend the order to the House and I beg to move.
	Moved, That the draft order laid before the House on 24 April be approved [25th Report from the Joint Committee].—(Lord Evans of Temple Guiting.)

Lord Roberts of Conwy: My Lords, we are grateful to the Minister for presenting this order and explaining its purposes with such care. We are familiar with transfer of function orders in this House and this one appears to be as uncontroversial as the Minister claims. However, there are one or two questions that arise.
	The transfer of functions under Section 1 of the Education (Fees and Awards) Act 1983 is sensible, since policy responsibility for student support has, as the Minister said, been transferred to the National Assembly, along with the other functions available under the 1983 Act. It is, therefore, no longer appropriate for the Secretary of State for Education and Skills to retain the power under Section 1 to make regulations regarding the charging of higher fees to students in higher and further education who do not have the requisite connections with the United Kingdom. I assume that we are talking here about foreign students only, coming here from overseas for their final years of education, but I require an assurance that this is the case. There has been talk in Wales of charging different fees to students whose homes are in Wales and students from outside Wales, including England and Scotland. Could Section 1 be used to impose such differential rates either on its own or in tandem with Section 2 of the 1983 Act?
	As I understand it, top-up fees are to be introduced at Welsh institutions as from 2007–08. Students normally resident in Wales will get an Assembly grant of £1,800 annually towards their increased fees. English and Scottish students in Wales will not have such grants, nor will Welsh students attending English or Scottish universities. Is it the intention of the Assembly Government
	"to make regulations authorising or requiring certain institutions",
	in the words of the Explanatory Notes, to charge fees on this basis? Perhaps the Minister would clarify the position once and for all. He made certain things clear in his opening statement, but further clarification would be helpful.
	As to the Regulatory Reform (Fire Safety) Order and the transfer of all functions under that very substantial order to the National Assembly, this is clearly a necessary consequence of the devolution of responsibility for the fire and rescue services that took place in November 2004. Where does that responsibility now lie in the Assembly and the Assembly Government? What is the title of the department? I ask because fire safety is very important and a number of significant powers will be transferred—for example, the power to make regulations about fire precautions, the power to authorise persons as the enforcing authority for certain non-domestic premises, the power to issue guidance to enforcing authorities, and the power to determine disputes.
	As the Minister said, fire safety law has been updated and reformed in recent years. The fire safety order is a part of that reform and it is important that it is properly implemented. The emphasis, as I understand it, is on fire prevention in the workplace and, under the order, the responsible person for each premise will be required to carry out an assessment of the risk of fire and take steps to reduce or remove the risk.
	All this spells careful control and supervision, especially in the early stages. What provision has been made at the Assembly or within the Assembly Government to carry out these functions adequately? I know that the National Assembly has been consulted on the order and has agreed to a modification of function—we are told this on page 5 of the 118-page document—and it would be good to know that preparations for receipt of these functions and their implementation are well in hand.
	I understand that the Assembly is currently considering a fire and rescue services charging order to enable the authorities to charge for the services they provide. These may include the removal of floodwater, rescuing people from lift cabins and giving advice on safety in premises where a trade, business or other undertaking is carried on. I shall say no more on that issue because I believe the order is still subject to discussion and not yet finalised. If the Minister could tell us the latest state of play in the Assembly Government in regard to this transfer of function, we would be very grateful.

Lord Roberts of Llandudno: My Lords, on behalf of the Liberal Democrat Benches I welcome the order and the strengthening of the powers and authority of the National Assembly for Wales. We know there may be some teething troubles—possibly with the education awards and so on—but it will be good at the end of the first year of operations to look at the report to see where changes have to be made. Certainly, this is a step forward in the direction of evolution, not revolution.
	My main concern about the fire safety regulations is that we are advised that 11 guides are to be available in regard to the kinds of non-domestic premises that will be covered by the regulations. I will not read them all but they include offices and shops, factories and warehouses, sleeping accommodation—I wonder what that covers—residential care premises, educational premises and so on. But there does not seem to be any reference at all to houses in multiple occupation, hotels and guest houses. I come from a very notable hotel area and it would be good to know that they will be covered and included in the regulations.
	Will any advice be given to the various fire services as to where they should locate certain equipment? In Llandudno, we used to have one of those high-rise turntable ladders; I am sure that is the wrong term. Some of our hotels are six and seven storeys high—the equivalent of the Manhattan skyline in north Wales—and we need to be able to reach people who are trapped in the topmost rooms of these buildings. This has happened a number of times, once only in the past year, and I would be grateful if the Minister could assure me that the various fire service ladders and so on will be located where the need is greatest. With that question, I again give a general welcome to the order on behalf of these Benches.

Lord Evans of Temple Guiting: My Lords, I am extremely grateful to the noble Lords, Lord Roberts of Conwy and Lord Roberts of Llandudno, for their general support in welcoming these orders and for their questions.
	In response to the points raised by the noble Lord, Lord Roberts of Conwy, the transfer of the education function deals solely with powers enabling the drafting of regulations governing institutions charging higher fees for foreign students. It does not cover students from, or who can demonstrate a connection with, the UK. The Education (Fees and Awards) Act 1983 does not provide powers to set fee levels for students from the UK. The making of regulations that govern variable top-up fees, grants and loans are the subject of different legislation not before the House today, and are already devolved.
	To clarify the issue of student fees in Wales, however, under the Higher Education Act 2004 the Assembly Government will be making regulations that cover the arrangements for the 2007–08 academic year. Those regulations will enable students ordinarily resident in Wales and studying there to receive a fee remission grant of up to £1,800 towards university fees of a maximum £3,000. This has the effect of keeping the level of fees that Welsh-domiciled students have to find at £1,200, which is the current level of fixed fees in 2006–07. UK students from outside Wales studying at Welsh institutions and Welsh students studying outside Wales will not receive the grant. Cross-party support was given to this policy decision made by Members of the National Assembly for Wales in June 2005.
	The Fire and Rescue Services Act 2004 devolved to the National Assembly for Wales various powers in relation to fire and rescue authorities in Wales. Policy in this area is administered by the fire and rescue services branch of the Assembly Government's Social Justice and Regeneration Department. This department falls within the portfolio of the Minister for Social Justice and Regeneration, Mrs Edwina Hart AM. However, it should be noted that any relevant subordinate legislation in this area can be made only by the National Assembly for Wales itself.
	The Minister for Social Justice and Regeneration has established an advisory structure comprising representatives of fire and rescue authorities serving FRS personnel, communities, business and others to help inform FRS policy development in the round. In addition, the Assembly Government provide both revenue and capital funding for the service in Wales.
	In response to the two points raised by the noble Lord, Lord Roberts of Llandudno, I can confirm that hotels and guesthouses are included under the sleeping accommodation guide. In the matter of guidance on the location of aerial ladders for tall buildings, the Welsh Assembly Government published guidance on risk reduction planning, Fire and Rescue Service Risk Reduction Plan—Wales a Safer Country, on 21 March 2006. The guidance assists fire and rescue authorities in reducing risk while placing citizens, communities and stakeholders centre stage in the development of the FRA's agenda. While the guidance does not contain specific advice on the location of aerial appliances, it does provide a holistic approach to the management of service delivery, including the location and provision of fire resources. Fire and rescue authorities place resources such as aerial appliances where their chief fire officers determine as an operational matter where there is a high risk to life. I commend this order to the House.

On Question, Motion agreed to.

National Health Service (Pre-consolidation Amendments) Order 2006

Lord Warner: rose to move, That the draft order laid before the House on 26 April be approved [25th Report from the Joint Committee].

Lord Warner: My Lords, this order for pre-consolidation is made under Sections 36 and 38 of the National Health Service Reform and Health Care Professions Act 2002. Those provisions enable the Secretary of State to make by order amendments to legislation relating to the health service in England and Wales which facilitate, or are otherwise desirable in connection with, the consolidation of NHS law.
	The order allows minor technical changes to the law prior to its consolidation. It affects the National Health Service Act 1977 and other health service legislation. The 1977 Act itself consolidated prior health legislation. There followed numerous statutory changes that have made applying the law a more complex task which calls for consolidation. For example, my noble friend Lord Hunt of Kings Heath pointed out in 2002 that the 1977 Act had been amended by 57 further statutes.
	The department intends to introduce three Bills in June to consolidate NHS law in England and Wales: the National Health Service Bill (England), the National Health Service Bill (Wales) and the National Health Service (Consequential Provisions) Bill. The three Bills have been prepared by the Law Commission, and represent many years' hard work by the draftsmen at the commission. I am extremely grateful for their work.
	I am very pleased that the parliamentary stages are underway, with this pre-consolidation order being the first stage of the process. The provisions of the pre-consolidation order are compatible with the European Convention on Human Rights. Furthermore, we have had nothing but supportive feedback from stakeholders within our 12-week consultation period. The order makes minor amendments to the National Health Service Act and other health service legislation. The amendments can be broadly categorised as: desirable to clarify the legislation or remove an element of ambiguity from it; necessary to remedy missed consequential provisions; incorporating modifications; dealing with local health boards in Wales; removing certain requirements for Treasury consent before certain payments can be made; remunerating practitioners; and repealing provisions which are either spent or are unnecessary.
	The order is not therefore the most exciting of reads. None the less, I will try and give a flavour of the order. The Explanatory Memorandum gives a detailed explanation of each of the provisions in Schedule 1. I hope this has been of assistance. The order enables consolidation to remove ambiguity. One example of this is Schedule 1(2), which amends Section 3 of the National Health Service Act 1977. In a legal dispute of July last year, the Court of Appeal, on intervention by the Department of Health, reversed a court decision to narrowly construe the term "facilities." The order amends Section 3 to more clearly reflect the finding of the court in that case.
	The order also aims to correct a number of missed consequential amendments. The first example concerns the NHS and Community Care Act 1990 and the Health and Social Care Act 2003. A large part of the order incorporates provisions in relation to local pharmaceutical services. The National Health Service Local Pharmaceutical Services Regulations 2006 recently made a number of modifications to the 1977 Act. The order incorporates these modifications into the 1977 Act, thereby making the legislation more accessible.
	This brings me to the amendments necessary because of the powers of the National Assembly for Wales. The Assembly has directed local health boards to exercise some of its functions that were transferred to the Assembly on the abolition of health authorities in Wales in April 2003. The consolidation reflects the effect of these functions regulations by substituting references to local health boards for references to health authorities in all relevant sections under the 1977 Act. The order clarifies these arrangements accordingly. Another group of amendments concerns Treasury consent provisions. The order removes the requirement for Treasury consent for certain payments which may be made by the Secretary of State. This is in line with Treasury policy that such consent should be reviewed and repealed where appropriate. The Treasury has agreed these amendments.
	I should make special reference to the largest amendment. Schedule 1(19) inserts Sections 43A and 43B into the 1977 Act. The consolidation will be more comprehensible if it is possible to reproduce these sections in a simple form, and this amendment, together with the consequential repeals, will enable this. Furthermore, by amending other legislation, the order will provide for a less complex consolidation exercise. For example, the Ministry of Health Act 1919 is spent and is therefore repealed. This avoids the need to reproduce a spent enactment in the consolidation. In summary, the order is an important step in the consolidation of our NHS legislation. I beg to move.
	Moved, That the draft order laid before the House on 26 April be approved [25th Report from the Joint Committee.]—(Lord Warner.)

On Question, Motion agreed to.
	House adjourned at twenty-six minutes before nine o'clock.

Tuesday, 16 May 2006.